Shareholder Activism Overview

Transcription

1 Shareholder Activism Overview Rob Main, CFA Vanguard Investment Stewardship/Head of Portfolio Company Engagement, Analysis, and Voting Sabastian V. Niles Partner, Wachtell, Lipton, Rosen & Katz Cristiano Guerra Head of ISS s Special Situations Research team Steve Frankel Partner, Joele Frank Waheed Hassan, CFA Head of Activism Defense Practice, Alliance Advisors, LLC

2 Activist Investing Is a New Asset Class Assets Under Management by Activist Investors* (USD Billion) (US$ billion) YTD Source: Activist Insight, as of Sep. 5, *Includes activist investors in North America only.

3 Activist Campaigns Voting Trends Total Proxy Fights (Voted On + Withdrawn + Settled) 140 Voted-on Settled Withdrawn # Fights H2017 Year* Most activist campaigns DO NOT go to a shareholder vote 3 Source: FactSet SharkRepellent, as of June 30, *Based upon scheduled meeting date.

4 Activist Win-Rate (all campaigns) Dissident Success Rate for All Proxy Fights Success Rate (%) H2017 Year* Access to expertise and support of long-only funds has resulted in high win-rate 4 Source: FactSet SharkRepellent, as of June 30, *Based upon scheduled meeting date. Success rate is defined as the number of outright victories, partial victories or settlements by the dissident as a percentage of all proxy fights where an outcome has been reached.

5 Activist Campaigns The Winner is Management vs. Dissident Track Record in Proxy Fights That Went To Shareholder Vote # Fights Management won Dissident won Split H2017 Year* Management s win-rate has improved 5 Source: FactSet SharkRepellent, as of June 30, *Based upon scheduled meeting date.

6 Activists Tend to Seek Minority Representation Primary Proxy Contest Campaign Type* Board Control (Majority) vs. Board Representation (Minority) Total Number of Campaigns % 90% 80% % Campaigns 70% 60% 50% 40% 67% 70% 66% 71% Minority Majority 30% 20% % 33% 30% 34% 29% 0% H Source: FactSet SharkRepellent. Data based upon meeting date between Jan. 1, 2014 and Jun. 30, *Campaign type includes board control and representation.

7 Activists Focus on Small/Mid-Cap Companies Proxy Contest by Market Cap. (Board Control/ Representation) $5-B 3% >$B 4% $1-5B 15% $0.5-1B 12% <$500M 66% 7 Source: FactSet SharkRepellent. Data based upon meeting date between Jan. 1, 2014 and Jun. 30, Campaign type includes board control and representation. Excludes companies for which market capitalization is unavailable at time of campaign announcement.

8 Manufacturing & Services Industries are Primary Focus of Activist Campaigns Total # of Campaigns Construction, Mining Wholesale Trade, Retail Trade Transportation, Communications, Electric, Gas, And Sanitary Services Services Finance, Insurance, And Real Estate Manufacturing H Source: FactSet SharkRepellent. Data based upon meeting date between Jan. 1, 2014 and Jun. 30, Campaign type includes board control and representation.

9 Institutional Investors Support Activists Percentage of time any fund family voted on the opposition card % 60% 63% 50% 47% 47% 43% 40% 30% 20% 33% 33% 25% 33% 27% 24% 22% 29% 27% 33% % 7% 0% Dimensional Fund Advisors 0% T. Rowe Rice Associations, Inc. Fidelity Management and Research Invesco Advisors Blackrock Advisors Northern Trust Vanguard Group SSgA 9 Source: Proxy Insight, ISS Voting Analytics. Data based on N-PX filings: 2016 (period covered: 7/1/2015 6/30/2016), 2017 (period covered: 7/1/2016 6/30/2017). Proxy contests for US companies only.

10 ISS appears to be more supportive of activist Proxy Fights where ISS issued recommendation # Meetings For Management For Activist (47%) 14 (57%) (37%) 11 (58%) H2017 Source: ISS Governance Voting Analytics. Data based upon meeting date between Jan. 1, 2014 and Jun. 30, Proxy contests for all indices in USA. Includes Elect Directors (Opposition Slate) and Remove Existing Directors only.

11 Key Activist Agendas M&A BALANCE SHEET OPERATIONAL Force sale or break-up of the company Oppose announced M&A or demand a better offer Potentially form groups with strategic acquirer E.g. Valeant/Allergan situation Maximize shareholder value via share buyback and special dividends Target cash on corporate balance sheet E.g. Carl Icahn vs. Apple Seek operational improvements, elimination of business lines and products, geographic expansions etc. Requires extensive industry experience and expertise Focus is on underperformance of segments and/or poor capital allocation strategy. E.g. Starboard vs. Darden and Carl Icahn vs. EBay GOVERNANCE Pursue improvements in governance profiles/polices (separation of Chairman/CEO roles, board declassification, management compensation, etc.) E.g. David E. Stern/ Air T. and Marathon Partners vs. Shutterfly

12 Components of Activist Risk Assessment Valuation Operational Issues Balance Sheet/Capital Allocation Corporate Governance Total Shareholder Return (TSR) Revenue Growth Leverage Governance profile Valuation multiple premium/ discount Operating Margin Level of cash vs. Enterprise Value Executive compensation Change in Analyst Estimates ROIC Acquisition and R&D spending Prior Proxy Advisory firm recommendation Earnings Surprise Relative Segment Performance Share buyback/dividend 12