DealLawyers.com Blog

Monthly Archives: February 2016

February 29, 2016

2016 Shareholder Activist Themes & Opportunities

The latest survey from FTI Consulting and Activist Insight explored themes and opportunities activists expect in the coming year, and the investing practices and strategies they plan to employ. Results are based on input from 24 activist firms that have collectively engaged in over 1200 events in more than 10 countries.

Key findings include:

  • Energy sector was identified among activists as the most significant activism opportunity based on undervaluation, followed by the industrial sector.
  • Healthcare ranked third, but is tempered by a signficant percentage of respondents reporting limited opportunity in that area – which the authors attribute to debate among activists as to the likelihood of consolidation in the healthcare industry.
  • Most activists believe that the best activism targets are micro- to mid-cap stocks rather than mega-caps, with the greatest activity expected among small caps.
  • Activists claim to have much longer holding periods than they’ve exhibited in the past – an average of 3 years compared to an average of 1.5 years two years ago, correlating with an expected increase in operational (as opposed to event-driven) activism – assuming the longer holding periods stick.
  • 80% of investors think merger activism will increase in 2016.

See our earlier blog on Part I of the survey released in September, which addressed the expected cooperation of institutional investors with activist campaigns, and these recent articles, “Why Wall Street’s campaign to enrich shareholders could be bad for everyone else” and “Investor Activism Doesn’t Work With Tech Companies.”

February 24, 2016

The Rise of the Reluctant Activist

Here’s the intro from this WSJ article:

Investor Jeffrey Osher sat on his holdings in prepaid-debit-card issuer Green Dot Corp. for three years before he lost his patience. In December, after a string of disappointing earnings reports that left the company’s shares down sharply, the hedge-fund manager met with the board and asked directors to fire founder and Chief Executive Steven Streit, according to people familiar with the meeting. When the board refused, Mr. Osher’s Harvest Capital Strategies LLC did something it had never done before: It publicly threatened to run a campaign to oust the company’s directors. Those moves put Mr. Osher into a newly emerging class of shareholders: Typically passive investors who are adopting, sometimes reluctantly, the tactics of activists.

The rise of these “reluctavists” or “suggestivists,” as they are sometimes called, reflects the success of vocal shareholders in forcing corporate change, as well as broader shifts in the investing world. Changes in securities laws and an expansion of investor rights have encouraged shareholders who once deferred to management to speak up when they are unhappy.

First-time activists ran 49 campaigns against U.S. companies last year, up from 36 in 2014 and 15 in 2011, according to Activist Insight. Some 54% of all campaigns were launched by what the researcher deems “occasional” activists, up from 30% in 2011.

February 23, 2016

Transcript: “Activist Profiles & Playbooks”

We have posted the transcript for the recent webcast: “Activist Profiles & Playbooks.”

February 22, 2016

Chinese Takeovers: Political Backlash Grows in DC

Here’s the intro from this NY Times article:

As Chinese companies try to snap up American tech businesses, they are setting off ripples of unease in the Obama administration and in Congress, inciting a backlash that has stopped the latest acquisition attempt. One of the companies that first brought silicon to Silicon Valley — Fairchild Semiconductor International — said it would remain in American hands after rejecting a takeover offer worth about $2.5 billion led by Chinese state-backed buyers. Instead, Fairchild embraced a smaller bid from an American rival on Tuesday, citing concerns that federal regulators might reject the Chinese deal.

The unsuccessful Chinese bid for Fairchild was just one of at least 10 such offers in the last year for international semiconductor businesses, mostly in the United States. China’s Five-Year Plan, the government’s economic and strategic road map, has emphasized semiconductors as a core industry. And a long list of Chinese companies with varying ties to the government have been trying to acquire foreign technology in the sector.

February 16, 2016

Say-on-Golden Parachute: A Comprehensive Look

This piece by Semler Brossy’s Ross Brondfield and Hanna Hoopingarner is chock full of graphs and charts, detailing how say-on-golden parachute has fared over the past few years…

February 11, 2016

Transcript: “Best Efforts Offerings – Nuts & Bolts”

We have posted the transcript for our recent webcast: “Best Efforts Offerings – Nuts & Bolts.”

February 10, 2016

Director Pay: Nasdaq Proposes Golden Leash Disclosure Requirement

A few weeks ago, Nasdaq proposed a rule change that would require listed companies to disclose “golden leash” arrangements. As noted in this Dorsey memo, the proposed rule would require listed companies to disclose on their website or in their proxy all agreements between any director or nominee any person or entity (other than the company) that provide for compensation or other payment in connection that the person’s candidacy or service as a director. The proposed rule is meant to be interpreted broadly – so it would apply to payments for items such as health insurance premiums. However, disclosure of arrangements that relate only to reimbursement of expenses incurred in connection with a nominee’s candidacy for director, or that existed before the nominee’s candidacy would not need to be disclosed.

February 9, 2016

Joseph Slights Tapped as Next Delaware VC

Here’s news from this DelawareOnline article:

Gov. Jack Markell has nominated former Superior Court judge Joseph R. Slights III to be the next vice chancellor of the Delaware Court of Chancery. If confirmed, Slights will replace Vice Chancellor John W. Noble, who is retiring later this month.The state Senate will have to approve his nomination after the legislative session resumes in March.

A former Judge of the Delaware Superior Court, Slights returned to private practice at Morris James as a partner in the firm’s Corporate and Commercial Litigation group. Since returning to private practice, he has specialized in complex commercial and corporate litigation before the Chancery and Superior courts as well as the United States District Court for the District of Delaware. He also chairs Morris James’ alternative resolution practice group, serving as a mediator and arbitrator in business disputes.

Slights is a Dover native and has an associate’s degree from Wesley College, a bachelor’s from James Madison University and law degree from Washington and Lee University. Prior to joining the bench, he was a trial litigator at Richards Layton & Finger and Morris James when it was known as Morris James Hitchens and Williams. Former Gov. Tom Carper appointed Slights to Superior Court in 2000. In 2014, Slights submitted an application to replace outgoing state Supreme Court Justice Carolyn Berger, but Markell ultimately selected former Superior Court President Judge James T. Vaughn III.

February 8, 2016

Secrets of the Activist Manager

In “Secrets of the Activist Manager,” PwC’s Larry Jones and Joseph Duerr draw from a new analysis of 55 companies over the past 10 years in which shareholder activists had a significant impact on company governance and strategy – and compared their performance to that of their industry peers. In five industries, they found that highly activated companies grew revenues much more slowly than their non-activated peers in the same time frame. To effectively combat shareholder activism with a short-term view, they advocate a 3-step approach for management to follow: First, evaluate, systematically and dispassionately, where the opportunities for value creation exist. Second, evaluate and execute options to deliver on those opportunities. And finally, communicate the growth plan to value-oriented investors.

Also see this NY Times’ piece entitled “Remaking Dow and DuPont for the Activist Shareholders”…

February 4, 2016

Activist Activity: Three Perspectives

On the heels of the NACD’s annual survey of more than 1,000 directors, which found that more than 20% of respondents’ boards were approached by activist investors during the past year – yet 46% of those surveyed have no plan in place for responding to activist investor challenges – comes this Reuters article that says companies are settling with hedge fund activists at the fastest pace since the financial crisis. Then there is this WSJ piece entitled “Are Activist Investors Helping or Undermining American Companies?” – here’s an excerpt from that:

The Journal looked at 71 campaigns against companies with market capitalizations of more than $5 billion over a period dating back to 2009, the start of the surge of agitation. The review studied changes at these companies in earnings, margins, corporate spending, employee efficiency and shareholder return versus peers. The resulting data bolster the increasingly popular conclusion that the best corporate response to activism isn’t for a board or chief executive to reactively shun an activist, or to completely acquiesce to any demands. Instead, companies may be better off analyzing each proposal, and the track record of the activist making it, some advisers say.

“The focus is changing to whether the idea is good or bad,” says Avinash Mehrotra, co-head of Goldman Sachs Group Inc. ’s activism defense and shareholder advisory group. One key factor in judging an idea’s merits, he said, is the time frame an activist is demanding. The review shows that shares of large companies confronted by activists are more likely to outperform stocks among their industry peers than they are to underperform. But the differential isn’t great. Slightly more than half, or 38, of the situations in the Journal study led to better shareholder returns than industry peers for the period studied after the activist went public. In the end, the median campaign beat peers by just under 5 percentage points.