Activist Wins Another Vote Under Universal Proxy

Michael R. Levin is founder and editor of The Activist Investor. This post is based on his TAI piece. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian Bebchuk, Alon Brav, and Wei Jiang; Dancing with Activists (discussed on the Forum here) by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine Jr; and Universal Proxies (discussed on the Forum here) by Scott Hirst.

Last week we saw only the second voting outcome in a proxy contest under the new universal proxy card (UPC) rule. The activist investor prevailed decisively, in an interesting and unusual election. UPC may have helped encourage the activist to pursue it, but likely did not affect the outcome.

Mangless and ZVRA

An individual investor, Daniel Mangless, owns 2.3% of Zevra Therapeutics (ZVRA), since 2019. Other than a few Form 13Gs for ZVRA and one other holding, the preliminary proxy statement for ZVRA was his first-ever SEC filing and, it appears, activist project.

He rather quietly nominated three candidates for three available seats on the seven-person classified BoD. ZVRA nominated the three incumbents, including the CEO and a director first appointed in November 2022. He also proposed reversing any bylaw amendments from 2023, which the ZVRA BoD could have approved but not disclosed to shareholders.

At the ASM last week, all three challengers won by a significant margin over the three incumbents. The bylaw amendment reversal also prevailed by a similar margin.

Quick contest

It started in mid-January, when Mangless met with ZVRA to review the nomination process and notice deadlines. Within a couple of days, ZVRA scheduled the ASM for April 25, presenting a challenge.

For six of the past seven years, ZVRA ran the ASM in late May or mid-June, including June 28, 2022. The date for the 2023 meeting moved more than 30 days before the anniversary of the 2022 meeting, Hence, the advance notice period became the 10 days ending January 30. Mangless sent proper notice within a week.

ZVRA swung into action:

  • Proposed a couple of settlements in February, which Mangless declined
  • Hired MorrowSodali to solicit proxies, budgeting $600,000 plus expenses for the contest
  • Sent twelve separate proxy filings in about two months, with all manner of presentations, shareholder letters, and other materials advocating for the three incumbents.

Mangless took a … different approach. He filed one each of a preliminary, revised, and definitive proxy statement. He opened a simple Gmail account, lacked a contest website, and sent zero news releases. He hired a proxy solicitor that no one we know heard of and a small Midwestern law firm with no evident experience in proxy contests; neither appear on any of the league tables we follow. He estimated his total costs at $250,000.

Much to work with, though

As an activist project, ZVRA had some important things going for it. First, ZVRA shares fell very far over five years, losing over 90% of their value, and barely moving from there in the past year. It dodged delisting through a massive reverse share split in 2020.

The voting math could favor an activist. At the 2021 and 2022 ASMs, only 55-65% of the outstanding shares attended. Furthermore, about half of those shares did not vote as broker non-votes. Finally, insiders own 2-3% of the outstanding shares. An activist could likely identify most of the likely voters with relative ease, and present a straightforward thesis.

And, those shareholders expressed unhappiness before. In the four ASMs in 2019-2022, many of the incumbent directors saw significant withhold votes. A couple saw more withhold than affirmative votes. It seems an activist could prosecute a decent proxy contest merely by giving shareholders a choice.

This situation allowed Mangless to craft and deliver a concise message. He filed a single shareholder letter that stated a simple, direct case, which he repeated in his other proxy filings.

Mangless sent too simple a message for proxy advisors ISS and Glass Lewis. Both recommended investors vote for all three incumbents, calling his case “thin on detail”.

Shareholders choose the activist

At the ASM on April 25, all three activist candidates won an astounding 80% of the available votes cast. The proposal to amend the bylaws won 84% of the votes cast.

Shareholders didn’t see the need to split votes among incumbent and activist candidates, one of the features of UPC. All three challengers each received approximately the same votes, as did the three incumbents.

It’s not completely clear whether UPC allowed ZVRA shareholders to express preferences with more precision than before. If anything, shareholders chose to defy the proxy advisors and support Mangless anyway. We speculate he hoped for some sort of a split between ZVRA incumbents and his challengers, which UPC would allow with ease. Shareholders supported the challengers beyond what anyone might have expected.

We count this as a proxy contests that might not have happened without UPC, even though UPC did not appear to have a significant impact on the outcome.

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