Activist Defense Practice

Transcription

1 Activist Defense Practice Peter Casey Executive Vice President - Proxy Solicitation Group pcasey@allianceadvisorsllc.com Jeffrey Nisenson Senior Vice President - Market Surveillance Group jnisenson@allianceadvisorsllc.com Waheed Hassan, CFA Senior Managing Director - M&A/Proxy Contest Group whassan@allianceadvisorsllc.com Copyright 2015 by Alliance Advisors, LLC. ALL RIGHTS RESERVED.

2 Alliance Advisors A Trusted Advisor TICC Capital was in a unique situation facing not one but two hostile actions: one to replace the entire Board so as to gain control of the management agreement, another representing a highly conditional unsolicited bid for the entire company. Before Alliance Advisors involvement, ISS recommended voting AGAINST management s proposal. Two weeks before the shareholder meeting date, Waheed got involved and with his assistance, we re-engaged with ISS with a modified message and update. This approach worked, and ISS reversed its recommendation to in favor of voting FOR the management proposal. We would highly recommend anyone considering ISS engagement (in particular, in a contested situation) to retain Waheed and his team at Alliance Advisors. Steve Novak, Chairman, Special Committee of the Board, TICC Capital Corp. We retained Alliance Advisors to assist us in the proposed merger with Fyffes. The Alliance team proved invaluable to these efforts, guiding both Chiquita and Fyffes through the ISS engagement process. Waheed and his team provided very accurate guidance and insight on ISS, which was instrumental in garnering ISS support for this contested transaction. We would highly recommend Alliance Advisors to anyone seeking any ISS engagement needs. Edward Lonergan, Former CEO, Chiquita Brands International 2

3 Our Holistic Approach to Tackling Activist Risk BRS coupled with surveillance and solicitation information ensures high level of activist preparedness Board Risk Assessment (identify key areas of shareholder criticism based on financial/share price performance) At risk companies need to monitor changes in ownership to proactively identify activist accumulation Company 3 Proxy Solicitation (provide intelligence on where shareholders custody their shares. Key in early identification of activist investors) Activist investors tend to hide their ownership behind different custodians Stock Surveillance (proactively monitor shareholder base to identify creeping accumulation by activist/hostile investors)

4 Our Competitive Advantage 90% success rate in garnering favorable recommendation from ISS (both activist and issuers) in contested situations. High success rate due to Alliance taking the lead in reviewing fight letters and preparing the ISS deck. Clients are coached extensively through multiple mock interviews prior to presenting to ISS and top institutional investors. Only proxy solicitor that has the capability and experience to take ownership of ISS/investor deck in proxy contests. Waheed Hassan, CFA (Senior Managing Director at Alliance Advisors) formerly managed the Proxy Contest Team at ISS where he was involved in over 100 contested meetings. Strong relationship with major institutional investors ensures access to key decision makers. With +400 solicitation clients, Alliance team speaks with Vanguard, State Street, Fidelity, BlackRock, Dimension Funds (DFA) and T.Rowe Price regularly throughout the year. 4

5 5 Step 1: Know Your Vulnerabilities (be your own activist)

6 Key Activist Agendas 6 M&A BALANCE SHEET OPERATIONAL GOVERNANCE 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. 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

7 How Issuers Prepare for Activist Situation EVALUATE ACTIVATE ENGAGE Assess vulnerabilities and weaknesses Conduct investor vulnerability study including investor perception study and analysis of shareholder base Identify legal defenses Keep informed about activists different activists employ different tactics; therefore, knowing who the activists are will help to inform our defense Appoint the defense team including internal representatives from Legal, PR, IR, Gov t Relations, Employee Communications and external legal, financial and communications advisors and proxy solicitors Develop a regular cadence of communication with the Board of Directors Create detailed plans for various scenarios and contingencies Create the written record of good governance that can be cited Position the company for a potential dialogue with ISS, putting in place the indications of good governance that can support a positive recommendation 7

8 Activist Target: Small/Mid-Cap Companies Proxy Contests for Board Representation (Jan-Dec 2015) Proxy Contests where ISS issued recommendation (Jan'15-Dec'15) >$10B 4% $5-10B 3% Market Cap # of companies % of Total $1-5B 11% >$10B 2 6% $5-10B 1 3% <$500M 69% $0.5-1B 14% $1-5B 8 24% $0.5-1B 4 12% <$500M 19 56% Total Proxy Fights % Source: FactSet Shark Repellent. Data as of 2/11/2016 Source: ISS Governance Analytics 8

9 Institutional Investors Support Activists Percentage of time any fund family voted on the opposition card % 80% 60% 40% 20% 0% % 60% 50% 40% 30% 20% 10% 0% Dimensional Fund Advisors T. Rowe Price Associates, Inc. Fidelity Management and Research Invesco Advisors Black Rock Fund Advisors Northern Trust Investments, Inc. The Vanguard Group, Inc. SSgA Funds Management, Inc. 9 Source: ISS Voting Analytics, Alliance Analytics Data based on N-PX filings: 2014 (period covered: 7/1/2013 6/30/2014), 2015 (period covered: 7/1/2014 6/30/2015 Proxy contests for companies in Russell 3000 only

10 Activist Risk Assessment Deep-dive analysis of company s performance from the perspective of the activist investor. Highlight potential areas of vulnerabilities. Proactively develop activist and investor engagement/messaging strategies. Assist in drafting Activist Playbook. In a proxy contest: Take ownership of preparing the ISS presentation Conduct mock ISS interviews Review press releases and proxy statement Schedule calls with institutional investors We are an integral part of the Activist Defense Team. Clients vary from small to large cap. 10

11 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 11

12 12 Step 2: Proactively Monitor Shareholder Base to Identify Accumulation by Activist Investor(s)

13 An Intelligent Stock Surveillance Program +400 proxy solicitation campaigns helps build and maintain best-inclass institutional custodian database Custodian data is then mapped to each institutional investor Annual Shareholder Meeting Alliance identified the following activists prior to 13D filing Monitoring of institutional voting, allows accurate detection and identification of custodians used by activist investors, hedge funds and traditional institutional investors Alliance Advisors has visibility on the custodian where vote was cast (JP Morgan, etc.) Votes cast is matched to reported ownership (13F and 13D filings) Investors cast their votes 13

14 Real-Time Analysis of Ownership Changes 13F filings tend to be dated Alliance uses its proprietary database of activist investors and their custodial banks to analyze weekly DTC listing to identify potential accumulation by activist investor(s). 14

15 Enhanced Visibility of Top Institutional Investors Close tracking of Top Institutional Investors helps mitigate potential element of surprise from an activist 15

16 Our Experience* Issuer Representation (includes activist defense advisory) Activist Representation (Target Companies) MORGANS HOTEL GROUP 16 * Select activist situations only.