Monthly Archives: January 2025

Compensation Season 2025

Posted by Adam Shapiro, David Kahan, and Michael Schobel, Wachtell, Lipton, Rosen & Katz, on
Thursday, January 23, 2025
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Adam J. Shapiro, David E. Kahan, and Michael J. Schobel are Partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Shapiro, Mr. Kahan, Mr. Schobel, Jeannemarie O’Brien, and Erica E. Aho.

Stock indices reached record highs in 2024 as the Federal Reserve stayed the course for a soft landing, reducing inflation, while simultaneously preserving a strong labor market. At the same time, increased regulatory vigilance and a rise in global political instability resulted in a year-over-year decline in larger merger transactions. With a new administration entering the White House earlier this week, change is sure to come. Attracting and retaining quality talent is always essential, but never more so than during periods of transition and uncertainty. We identify below some of the key themes that may shape company compensation decisions in the year ahead.

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Voting on Voting Rights: How the World’s Largest Investors Sanction Companies with Unequal Voting Rights

Posted by Caroline Escott and Shane McCullagh, Investor Coalition for Equal Votes (ICEV), on
Wednesday, January 22, 2025
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Caroline Escott is a Senior Investment Manager and Chair and Shane McCullagh is an Investment Analyst at Investor Coalition for Equal Votes (ICEV). This post is based on an ICEV memorandum by Ms. Escott, Mr. McCullagh, and Glenn Davis.

It is a cornerstone of the capitalist model that shareholders at companies should have a voice in proportion to their economic ownership: “one share, one vote”. This ability to effectively scrutinise, challenge and hold companies to account is a crucial part of shareholder democracy and good corporate governance, and research shows that, ultimately, it drives better long-term outcomes for companies [1].

However, in recent years, there has been a significant increase in the number and proportion of companies going public with dual-class share structures (DCSS) in the US [2]. DCSS are considered unequal voting rights because they go against the ‘one share, one vote’ philosophy, conferring greater voting power to certain shareholders that is not in line with their economic ownership in the company.

These US market developments have been accompanied by regulatory and policy initiatives in the UK [3], Europe [4] and Asia [5] that have rolled back long-standing investor protections and further enabled companies to list with DCSS, diluting shareholders’ ability to influence portfolio companies through the use of their votes at shareholder meetings.

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Insider Trading in Connected Firms during Trading Bans

Posted by Marc Goergen (IE Business School), Luc Renneboog (Tilburg University), and Yang Zhao (University of Liverpool), on
Wednesday, January 22, 2025
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Marc Goergen is a Professor of Finance at IE Business School, Luc Renneboog is a Professor of Corporate Finance at Tilburg University, and Yang Zhao is a Senior Lecturer in Financial Data Analysis at University of Liverpool. This post is based on their recent paper.

There is an extensive body of studies that documents that corporate insiders with access to insider information are able to earn abnormal returns by trading their firms’ shares. Insiders’ sales and purchases are considered by the market to be important signals about a firm’s prospects such that those trades are often followed by other market participants.

A less extensive literature has demonstrated that illegal insider trading, whereby insiders trade on price-sensitive information not yet disclosed to the market, can generate substantially higher abnormal returns. Still, regulation intends to create a level-playing field for all investors. This is why, prior to information releases by companies, there may be trading bans to prevent insiders from exploiting their informational advantage. For example, in the UK, there are trading bans – so-called “close periods” – in place during the 30 days before an earnings announcement.

Insiders violating insider trading regulations can face severe consequences. For instance, in 2016, two investment bankers were convicted of insider trading in the UK and sentenced to 3.5 and 4.5 years of imprisonment, respectively, along with the seizing of their assets (valued at £1.7 million), as part of Operation Tabernula led by the Financial Conduct Authority (FCA).

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Mergers and Acquisitions—What Awaits in 2025?

Posted by Victor Goldfeld, Mark Stagliano, and Mark Andriola, Wachtell, Lipton, Rosen & Katz, on
Wednesday, January 22, 2025
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Victor Goldfeld and Mark Stagliano are Partners, and Mark Andriola is an Associate, at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Goldfeld, Mr. Stagliano, Mr. Andriola, Adam Emmerich, Andrew Nussbaum and Igor Kirman.

After a relative low in global M&A in 2023, the past year witnessed a moderate uptick as the pandemic receded further into the rear-view mirror, the U.S. economy stabilized, inflation declined (albeit with some renewed concern toward the end of the year), financing markets brightened, albeit modestly, and equity markets climbed ever higher. Global M&A deal volume reached $3.17 trillion, reflecting a 9.8% increase compared to 2023. Though overall volume increased, heightened regulatory enforcement, among other factors, led to fewer very large transactions in 2024. No deals surpassed the $40 billion threshold in 2024, and there were only four $25 billion-plus deals announced in 2024, below the average of seven deals per year over the prior three years. The impending return of President-elect Donald Trump to the White House, with the Republican party having majorities in both houses of the U.S. Congress, is expected to bring a more business-friendly, deregulatory approach to policymaking, and further solidifies widespread expectations among market participants that M&A activity will increase in 2025.

But for any particular company, or deal, the details matter. It remains to be seen whether the global environment will be hostile to M&A that crosses borders (for example, in response to or as part of tariffs and trade wars); geopolitical volatility remains high, including in several war zones; tech-lash has not gone away and may even increase with respect to the largest technology companies; market valuations are high and interest rates may not decline further. Opportunity surely will exist, and many companies have been waiting for regulatory change prior to commencing in-industry M&A. Here, we review some of the key themes of 2024 and our thoughts on what may lie ahead in the new year.

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2024 Review of Shareholder Activism

Posted by Jim Rossman, Quinn Pitcher, and Josh Jacobs, Barclays, on
Tuesday, January 21, 2025
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Jim Rossman is the Global Head of Shareholder Advisory, Quinn Pitcher is the Vice President, M&A and Shareholder Advisory, and Josh Jacobs is an Investment Banking Associate at Barclays. This post is based on a Barclays memorandum by Mr. Rossman, Mr. Pitcher, Mr. Jacobs, Chris Ludwig, James Potts, and Dominic Pinion.

Observations on the Global Activism Environment in 2024

Global Campaigns Remain Robust as U.S. and APAC Drive Activity Levels
  • 243 campaigns mark the highest total since 2018’s record of 249 campaigns
    • The post-pandemic (2022-2024) period has been the busiest three-year period for activism on record, with an average of 236 campaigns per year, vs. a prior three-year high of 223 campaigns per year (2017-2019)
  • Continued U.S. (115 campaigns, up 6% year-over-year) and record APAC activity (66 campaigns) drove overall levels
    • Whereas the U.S. once constituted a supermajority of activity (69% of 2015 global campaigns), it now represents less than half of campaigns (47%)
    • APAC, driven by Japan, exceeded Europe in total activity for the first time
  • The 67% spike in activity from Q3 to Q4 is consistent with prior years as activists historically launch more campaigns in Q4 to exert pressure in advance of nomination windows, 77% of which open in the U.S. between December and February
  • European activity decreased (48 campaigns, down (26%) year-over-year) while the U.K remains the anchor for activist activity, constituting 42% of activist targets in the region
    • U.S. activists Elliott, Eminence, Sachem Head and Trian accounted for 17% of activist activity in Europe
Record Number of Activists Launching Campaigns While Major Activists Eye Larger Targets
  • 160 different investors launched campaigns in 2024, the most ever recorded; this included 45 first-time activists, also a record
    • Major activists(1) constituted only 17% of campaigns launched (43 campaigns), the lowest share of campaign launches ever recorded, compared to 18% by first-timers (45 campaigns launched)
  • Elliott was once again the most prolific activist globally, with 14 campaigns launched
    • Four of the ten largest targets this year were Elliott’s (Honeywell, SoftBank, Starbucks and Texas Instruments)
  • The top ten activists by campaigns launched included a mix of mainstays (i.e., Elliott, JANA Partners, Starboard), relatively new funds (Irenic) and regional funds (i.e., Gatemore, Oasis)
  • Major activists are targeting larger companies: mega-cap companies (over $25bn market capitalization) comprised 30% of major activist targets vs. 23% five years ago

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The Political Carbon Cycle

Posted by Dhruv Aggarwal (Northwestern University), on
Tuesday, January 21, 2025
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Dhruv Aggarwal is an Assistant Professor of Law at Northwestern Pritzker School of Law. This post is based on his recent paper.

Democrats and Republicans strongly disagree about climate policy. How does this disagreement influence the greenhouse gas emissions of private-sector firms? In a recent paper, I argue that the political affiliation of U.S. state governors has a surprisingly large effect on the polluting activities of public companies. Combining a hand-collected dataset tracking the careers of U.S. state governors over two decades and a proprietary emissions database, I document the existence of a political cycle in the level of polluting activities by privately run U.S. firms, with corporations significantly increasing carbon emissions when their headquarter state has a Republican governor.

I find that the presence of a Republican governor in a firm’s headquarter state is associated with 7.5% greater greenhouse gas emissions directly attributable to the firm, and 7% larger total emissions (including indirect emissions from activities such as purchasing raw materials). This finding could be correlated with partisan differences in climate policies and enforcement. Democratic governors are more likely than their Republican counterparts to propose new laws and regulations to mitigate the effects of climate change. Democratic governors are also more likely to empower state agencies to aggressively enforce existing environmental regulations against companies responsible for pollution. These differences in climate policies between governors based on their partisan affiliation allow companies to release more greenhouse gases into the atmosphere without fear of government punishment when there is a Republican governor in their headquarter state. Conversely, when a Democrat inhabits the governor’s mansion, companies headquartered in that state may become less likely to engage in environmentally unsustainable activities and hence reduce greenhouse gas emissions. The political carbon cycle uncovered by this Article could thus be caused by firms anticipating that Republican governors are less likely to support new climate regulations or enforce existing environmental laws.

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Practice Points Arising from Albertsons’ Claims Against Kroger for Breach of their Merger Agreement

Posted by Gail Weinstein, Philip Richter, and Steven Epstein, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Tuesday, January 21, 2025
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Gail Weinstein is a Senior Counsel, Philip Richter is a Partner, and Steven Epstein is Managing Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, Bernard A. Nigro Jr., Aleksandr B. Livshits, and Nathaniel L. Asker.

On December 10, 2024, two courts, on antitrust grounds, enjoined the planned $24.6 billion merger pursuant to which Kroger was to acquire Albertsons. After the injunctions were issued, Albertsons terminated the parties’ Merger Agreement and filed suit against Kroger in the Delaware Court of Chancery. Albertsons alleges that, post-signing, Kroger had a case of buyer’s remorse; and then, to derail the deal, willfully breached its obligations under the Merger Agreement to seek to obtain the antitrust approvals needed to close the deal. Albertsons is seeking the $600 million reverse termination fee (RTF) delineated in the Merger Agreement, as well as all legally available damages (including the lost merger premium). Kroger, in turn, has asserted that Albertsons breached the Merger Agreement and is not entitled to the RTF.

These developments are reminiscent of other busted deal situations, such as the 2017 $54 billion planned merger between Anthem and Cigna, which was enjoined on antitrust grounds. In that case, after trial, the Court of Chancery found that Cigna (the target company) had a post-signing change of heart about the deal and then actively worked against Anthem’s regulatory strategy in breach of the merger agreement—but that Cigna owed no damages to Anthem because the merger likely would have been enjoined in any event.  In that case, the court determined that, in light of Cigna’s breach, it was not entitled to receive the RTF provided for in that transaction.

While some or all of the allegations in the Kroger/Albertsons dispute may or may not be found to be true, they prompt consideration as to how a target company can best protect itself against the possibility that a buyer may not timely and effectively comply with its obligations to pursue the necessary regulatory approvals for a deal.

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Cultural Values and Cross-Country Differences in Responsible Investing Sectors

Posted by Jedrzej Bialkowski (University of Canterbury), Laura T. Starks (The University of Texas at Austin), and Moritz Wagner (University of Canterbury), on
Monday, January 20, 2025
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Jedrzej Bialkowski is a Professor of Finance at University of Canterbury, Laura T. Starks is a Professor of Finance at The University of Texas at Austin, and Moritz Wagner is a Senior Lecturer of Finance at University of Canterbury. This post is based on their recent paper.

Given the growth in Responsible Investing (RI) as an important investment strategy, particularly over the past several decades, we examine why growth in this strategy has differed across countries. In our working paper, Cultural Values and Cross-Country Differences in Responsible Investing Sectors, we employ a sample of 44,296 open-end mutual funds from 25 countries that have RI or conventional objectives and find wide variations in the importance of the RI sector across the world. For example, during our sample period, the market share of RI equity funds in Norway constituted about 48% of the total equity mutual fund assets under management, while in Australia the comparable figure is 11% and, in the U.S., a little less than 5%. Thus, the question arises as to the reasons for these wide disparities.

We propose that the size of a country’s RI mutual fund sector depends on the country’s cultural norms under the assumption that many investors’ primary motivations are driven by societal values. Moreover, if some people are willing to give up returns for these goals, as has been posited in theoretical work and confirmed through survey, experimental and empirical evidence, then we expect the size and growth of the RI market to also be affected by a population’s wealth and other economic conditions. Finally, given previous evidence that individuals’ investment choices have been affected by both their economic and environmental experiences, we hypothesize that common personal experiences with the environment may affect aggregate investment choices in a country.

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Activists Target Insurance Industry?

Posted by Eric Juergens, Nicholas Potter, and Amy Pereira, Debevoise & Plimpton LLP, on
Sunday, January 19, 2025
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Eric T. Juergens and Nicholas F. Potter are Partners, and Amy Pereira is an Associate at Debevoise & Plimpton LLP. This post is based on a Debevoise memorandum by Mr. Juergens, Mr. Potter, Ms. Pereira, Marilyn Lion, William Regner, and Gordon Moodie. 

Key Takeaways:

  • Activism has become a constant presence and growing force that publicly traded insurance groups need to be aware of and focused on.
  • The themes from 2024 activist campaigns include: short sellers taking positions and publishing negative news; longer-term investors looking to pressure companies to pursue new strategies; some diminishing activity around ESG; and even hostile takeover proposals.
  • Although it is difficult to predict what companies activists will target, and on what grounds, insurance companies, like all others, should prepare for activist campaigns “on a clear day.”

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ESG and Sustainability Insights: 10 Things That Should Be Top of Mind in 2025

Posted by Paul Davies and Betty Huber, Latham & Watkins LLP, on
Saturday, January 18, 2025
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Paul Davies and Betty Huber are Partners at Latham & Watkins LLP. This post is based on a Latham memorandum by Mr. Davies, Ms. Huber, Michael Green, and David Little.

Through the course of 2024, the development of the ESG and sustainability landscape was dynamic. We anticipate that this dynamism will intensify in 2025, given the implementation and potential amendment of ESG-related regulations and significant geopolitical developments around the globe. Companies, investors, and asset holders will need to remain agile and informed to adequately respond to these trends, while navigating the energy transition, greater scrutiny of value chains, and the “greenlash.” Integrating ESG and sustainability into corporate strategies and operations will require ever more sophistication and careful consideration, in particular by the directors and senior managers who are responsible for oversight of such matters.

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