Shareholder Activism: An Emerging Asset Class

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1 Shareholder Activism: An Emerging Asset Class Mark Gentile, Richards, Layton & Finger, PA Eileen Nugent, Skadden, Arps, Slate, Meagher & Flom LLP Jon Nygren, Faegre Baker Daniels Matt Sherman, Joele Frank, Wilkinson Brimmer Katcher Moderator: Mike Stanchfield, Faegre Baker Daniels 53 Shareholder Activism: Growing Resources Heightened levels of activist activity set to continue. More capital, more campaigns. Estimated Activist Fund Assets Under Management ($ billions) $93 $100 + $66 $48 $55 $47 $51 $29 $32 $36 $ Q

2 The number of activist campaigns has increased Activist campaigns ( ) Source: FactSet SharkRepellent data as of December 31, Activist 13Ds over time 13Ds filed by known activists with specific demands ( ) Source: 13D Monitor as of December 31, 2013.

3 Schedule 13D Requirements Schedule 13D Greater than 5% stake Possible intent to change or influence control or 20% stake Filings must be amended promptly for any material change (including 1% ownership change) Initial filing due 10 days after hitting 5% threshold Subject to insider-trading and antitrust rules, shareholder may continue to acquire ownership interests before filing Beneficial ownership may not capture all economic interests 57 Proxy fight statistics post-2008 Proxy fight outcomes Dissident election Withdrawn 25% At least one activist candidate elected 52% Settled without board seats 13% Went to Vote No activist candidate elected 48% Settled for board seats 28% Dissidents won at least one seat in ~46% of all proxy fights by either settlement or shareholder vote Source: FactSet SharkRepellent data as of November 3, Includes completed proxy fights for meeting dates from January 1, 2009 to December 31,

4 The number of proxy fights rose in 2013, following a decline after the financial crisis Proxy contests (1) (39%) % YTD 2014 (2) Seeking majority Seeking minority Source: FactSet SharkRepellent data as of November 3, 2014 (1) Campaigns where formal notice of dissident proxy is publicly disclosed. (2) Seeking more than half of the Board seats. 59 Shareholder support for dissident nominees has increased in recent years Vote results (4) Average ~46% of 7 fights won 4 at least 1 seat 45% % % % 47% % (1) (2) (3) Dissident win majority of seats sought Dissidents win minority seats sought Incumbent wins Source: FactSet SharkRepellent data as of December 31, 2013 (1) Includes winning half of the seats sought and campaigns which were settled prior to a vote and after an ISS recommendation was issued. (2) Includes campaigns that were settled prior to a vote and after an ISS recommendation was issued. (3) Includes campaigns that were withdrawn prior to a vote and after an ISS recommendation was issued. (4) Includes 4 campaigns settled post ISS recommendation. Sandridge Energy, Ferro Corp., Hess Corp., Tessera Technologies. 60

5 ISS has recommended in favor of dissidents approximately 50% of the time ISS vote recommendations % % 42% 10 50% 9 30% 54% (1) (2) For Majority Dissident Slate For Minority Dissident Slate or Incumbent No ISS Recommendation Source: FactSet SharkRepellent and ISS data as of December 31, 2013 Note: Percentages based on the total number of proxy fights where FactSet captures the ISS recommendation. (1) Includes supporting half the dissident slate. (2) Proxy fights that went to a vote with no ISS recommendation. ISS does not cover targets that are LLPs, LLCs, privately held, or have no ISS client investors. 61 Given the relative dissident success in contests, it s not surprising that many targets have decided to settle % % 42% 47% % 43 44% Settlements Withdrawn Went to Vote Pending Source: FactSet SharkRepellent data as of November 3,

6 Timken Company (November 1, 2012 to June 30, 2014) CalSTRS proposal and Relational ownership stake are publicly disclosed on Schedule 13D 13D amended to reflect increased Relational ownership Relational and CalSTRS send joint letter to Board members Board appoints strategy committee and retains Goldman Sachs Initial Form 10 is filed Shareholder vote to recommend spinoff Board approval of spinoff Spinoff is effective Graph Source: Yahoo! Finance 63 Combination of Strategic Acquirer and Activist Allergan April 2014 April - Activist investor Pershing Square acquired almost 10% stake in drugmaker Allergan, and plans joint bid with healthcare company Valeant April 22 - Valeant and Pershing Square jointly make unsolicited cash and stock takeover offers for Allergan; Allergan rejects offer and adopts poison pill May 2014 June 2014 May 7 Allergan reports better than expected Q1 earnings, states considering offer May 12 Allergan rejects offer May 13 Pershing Square files documents to call non-binding shareholder vote on proposal May 28 Valeant increased bid by $10, to around $163 per share plus contingent right to receive additional $25 per share May 30 Valeant raises bid again, to around $177 per share June 2 Pershing Square files documents to begin proxy fight to oust directors June 10 Allergan rejects raised Valeant offer June 12 Pershing Square seeks clarity from Chancery Court as to whether efforts to hold special shareholders meeting will trigger poison pill June 18 Valeant launches exchange offer for Allergan shares 64

7 Combination of Strategic Acquirer and Activist Allergan (continued) July 2014 July 7 Pershing Square announces dissident slate, for 6 director positions July 11 Pershing Square files definitive solicitation statement August 2014 September 2014 August 1 Allergan sues Pershing Square and Valeant in California, accusing Pershing Square and Valeant of violating tender offer rules regarding insider trading August 22 Pershing Square submits request for shareholder meeting September 4 Allergan schedules special shareholder meeting for December 18 September 15 Parties settle Delaware litigation, and allow special shareholder meeting to proceed 65