Tag: Shareholder activism


Further Recognition of the Adverse Effects of Activist Hedge Funds

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Earlier posts by Mr. Lipton on hedge fund activism are available here, herehere, and here. Recent work from the Program on Corporate Governance about hedge fund activism includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here). For five posts by Mr. Lipton criticizing the Bebchuk-Brav-Jiang paper, and for three posts by the authors replying to Mr. Lipton’s criticism, see here.

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Earlier posts by Mr. Lipton on hedge fund activism are available here, herehere, and here. Recent work from the Program on Corporate Governance about hedge fund activism includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here). For five posts by Mr. Lipton criticizing the Bebchuk-Brav-Jiang paper, and for three posts by the authors replying to Mr. Lipton’s criticism, see here.

Despite the continued support of attacks by activist hedge funds by the Chair of the SEC, and many “Chicago school” academics who continue to rely on discredited statistics, there is growing recognition by institutional investors and prominent “new school” economists of the threat to corporations and their shareholders and to the economy of these attacks and the concomitant short-termism they create.

In a “must read,” March 31, 2015 letter to the CEOs of public companies, Laurence Fink, Chairman of BlackRock and one of the earliest to recognize the danger from attacks by activist hedge funds, wrote:

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Shareholder Activism: an Engagement Opportunity

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

The following post comes to us from Ernst & Young LLP, and is based on a publication by the EY Center for Board Matters.

The recent surge in shareholder activism [1] continues to keep boards on alert heading into the 2015 proxy season. Some companies are taking proactive measures to prepare for potential activist investor campaigns, including engaging long-term institutional investors.

Based on what we’re hearing from long-term institutional investors, these efforts are worthwhile in that they foster constructive relationships and alignment with key shareholders.

The EY Center for Board Matters (the Center) recently had conversations with 50 institutional investors, investor associations and advisors on their corporate governance views and priorities. We also gained insights from investors, directors and other stakeholders through our proxy season dialogue dinners. [2]

This post is the second in a series of four posts based on insights gathered from those conversations and previewing the 2015 proxy season. The first post (available here) focused upon board composition. The upcoming two will focus on proxy statement disclosures, and the shareholder proposal landscape.

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Shareholder Activism: Who, What, When, and How?

Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. The following post is based on a PricewaterhouseCoopers publication, available here.

Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. The following post is based on a PricewaterhouseCoopers publication, available here.

Who are today’s activists and what do they want?

Shareholder activism spectrum

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“Activism” represents a range of activities by one or more of a publicly traded corporation’s shareholders that are intended to result in some change in the corporation. The activities fall along a spectrum based on the significance of the desired change and the assertiveness of the investors’ activities. On the more aggressive end of the spectrum is hedge fund activism that seeks a significant change to the company’s strategy, financial structure, management, or board. On the other end of the spectrum are one-on-one engagements between shareholders and companies triggered by Dodd-Frank’s “say on pay” advisory vote.

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The Evolving Landscape of Shareholder Activism: Developments and Potential Actions

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Jay Clayton, Mitchell S. Eitel, Joseph B. Frumkin, and Glen T. Schleyer.

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Jay Clayton, Mitchell S. Eitel, Joseph B. Frumkin, and Glen T. Schleyer.

It is clear that shareholder activism continues to evolve, expand and increase in influence. There is a growing emphasis, in particular by large mutual funds and other institutional investors, on shareholder engagement and shareholder-friendly governance structures that, together with the increased activity of activist hedge funds and other “strategic” activist investors, make shareholder engagement and preparedness an essential focus for public companies and their boards.

Most recently, BlackRock Inc. and the Vanguard Group, the largest and third largest U.S. asset managers with more than $7 trillion in combined assets under management, have made public statements emphasizing that they are focused on corporate governance and board engagement. Vanguard recently sent a letter to many of its portfolio companies cautioning them not to confuse Vanguard’s “predominantly passive management style” with a “passive attitude toward corporate governance.” The letter goes on to emphasize numerous corporate governance principles and to highlight in detail (as discussed further below) the importance of direct shareholder-director interactions. BlackRock recently updated its voting policies to make clear that they are more than just guides to how BlackRock votes–they represent “our expectations of boards of directors.” The new policies continue an emphasis on direct interaction between investors and directors.

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A Few Observations on Shareholders in 2015

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at Tulane’s 27th Annual Corporate Law Institute; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at Tulane’s 27th Annual Corporate Law Institute; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 19, 2015], I will share a few observations on three specific areas: the current state of shareholder activism; the shareholder proposal process; and fee-shifting bylaws. I know your next two panels take up aspects of these important topics, but I think the space is lively and big enough for all of us to comment.

The Current Activism Landscape

There are different views on what is meant by “shareholder activism,” but just the word “activism” triggers an adverse reaction from many companies. Reflexively painting all activism negatively is, in my view, using too broad a brush and indeed is counterproductive. To me, the term activism captures the range of efforts by investors to influence a company’s management or decision-making. Some of it is constructive. In certain situations, activism seeks to bring about important changes at companies that can increase shareholder value. Now, some of you may find the juxtaposition of the word “activism” with “shareholder value” does not comport with your sense of reality. Some of you also believe that activists are not interested in increasing long-term value for shareholders and other stakeholders. Still others will assert that activists are simply short-term traders looking to make a quick dollar. I did say this was a lively topic with many different views.

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The HSR Act’s Investment-Only Exemption for Targets and Activist Investors

The following post comes to us from Barry A. Nigro Jr., partner in the Antitrust and Competition and Corporate Practices and chair of the Antitrust Department at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Mr. Nigro, Philip Richter, Nathaniel L. Asker, and Alyson L. Redman.

The following post comes to us from Barry A. Nigro Jr., partner in the Antitrust and Competition and Corporate Practices and chair of the Antitrust Department at Fried, Frank, Harris, Shriver & Jacobson LLP, and is based on a Fried Frank publication by Mr. Nigro, Philip Richter, Nathaniel L. Asker, and Alyson L. Redman.

Activist shareholder campaigns continue to grow in number and prominence. One of the largest private equity deals of 2014—the $8.7 billion buy-out of PetSmart Inc.—came about following comments by a significant shareholder. A merger of the two leading office superstores, Staples and Office Depot, and the breakup of DuPont Co., each are being promoted by activist investors. These are but three examples of recent activist campaigns; with close to $200 billion in available funds, others are sure to follow. [1] The continued rise of shareholder activism serves as a useful reminder that targets and investors should be mindful of the scope of the investment-only exemption under the Hart-Scott-Rodino Act. Whether and when particular conduct may disqualify a shareholder from the passive investment exemption is a highly fact-specific inquiry and has been the subject of several enforcement actions in recent years.

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Key Considerations for Board and Audit Committee Members

Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on a PwC’s 2014-2015 Key considerations for board and audit committee members report.

Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. This post is based on a PwC’s 2014-2015 Key considerations for board and audit committee members report.

The changing business landscape, technological advances, and significant risks such as cybersecurity continue to present opportunities and challenges for companies today. Directors will want to take a fresh and critical look at their boardroom agenda to ensure it is meeting today’s needs.

PwC’s 2014-2015 edition of Key considerations for board and audit committee members, an annual publication from PwC’s Center for Board Governance, can help enhance the quality of board and management discussions in the coming year.

Here are some highlights:

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Wolf Pack Activism

The following post comes to us from Alon Brav, Professor of Finance at Duke University; Amil Dasgupta of the Department of Finance at the London School of Economics; and Richmond Mathews of the Department of Finance at the University of Maryland.

The following post comes to us from Alon Brav, Professor of Finance at Duke University; Amil Dasgupta of the Department of Finance at the London School of Economics; and Richmond Mathews of the Department of Finance at the University of Maryland.

In our paper Wolf Pack Activism, which was recently made publicly available on SSRN, we provide a model analyzing a prominent and controversial governance tactic used by activist hedge funds. The tactic involves multiple hedge funds or other activist investors congregating around a target, with one acting as a “lead” activist and others as peripheral activists. This has been colorfully dubbed the “wolf pack” tactic by market observers. The use of wolf packs has intensified in recent years and has attracted a great deal of attention. Indeed, a recent post on this forum described 2014 as “the year of the wolf pack”.

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Engagement and Activism in the 2015 Proxy Season

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

As the 2015 proxy season approaches, the dominant theme appears to be the interaction between directors and investors. Though, traditionally, there was little to no direct engagement, recent experience indicates that communication between these two groups is now on the rise, in some cases resulting in collaboration. This is potentially a beneficial development, particularly insofar as it may help companies and long-term investors work together to resist pressure from activist shareholders seeking short-term profits. In the current environment where activists and hedge funds appear to wield unprecedented financial and political leverage, and the influence of proxy advisors is as significant as it is controversial, the predominant trend seems to be “toward diplomacy rather than war.” Organizations such as the Shareholder-Director Exchange, which began last year to offer guidance to shareholders and boards on direct engagement, are promoting policies that may reduce the incidence, duration, and severity of contentious public disagreements.

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Advance Notice Bylaws: Trends and Challenges

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Gallardo, James Hallowell, Elizabeth Ising, Gillian McPhee, and Stephenie Gosnell Handler.

Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Gallardo, James Hallowell, Elizabeth Ising, Gillian McPhee, and Stephenie Gosnell Handler.

Shareholder activism continues to dominate the corporate landscape and attract daily headlines in the financial press. And, as the pace of activism accelerates in 2015, a number of legal battles over the last two years between companies and activists has put in the spotlight the permissible scope and function of advance notice bylaws—a term that we broadly define for these purposes to cover bylaw provisions establishing timing, procedural and informational requirements for shareholders seeking to present director nominations and other business proposals to a shareholder vote. [1]

A typical advance notice bylaw requires that shareholders submit to the corporate secretary notice of all director nominations and business to be put to a vote at an annual meeting within a thirty-day window that opens and closes on specified deadlines preceding the anniversary date of the prior year’s annual meeting date (or, less common, related proxy statement). Such a notice often must be accompanied by information about the nominee or business, and the proposing shareholder. This information is generally intended to enhance the board’s ability to advise shareholders regarding the nominee or proposal, as well as potential sources of conflict between the proponent and other shareholders.

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