April 23, 2015

Proxy Contests Tick Up in 2015

Here’s news from Chris Cernich and Cristiano Guerra in ISS’s Special Situations Research:

Thus far, 2015 is on track to be a record year for the number of U.S. proxy contests going to a vote, according to an analysis by ISS’ Special Situations Research team. Last year, ISS tracked 11 contests that went to a vote in May – the heart of the U.S. annual meeting season – and 17, in all, through June 30. For the full year 2014, a total of 33 contests went to a vote. By comparison, ISS is tracking 13 contested elections for meetings slated prior to May 1, and 22 more in the month of May alone – bringing the total to 35 in the first five months of the year. While some of them will most likely settle, ISS’ Special Situations Research team expects at least 30 to go to vote, based on conversations with participants in the contest.

Contest Size Increases

When looking at the size of target companies in the U.S., the sweet spot for activism is generally less than $1 billion in market cap. The median in 2009 was $94 million, and, even in that high-water-mark year for contested elections, only 9 percent of contests – four of them – had targets with a market cap of greater than $1 billion; the next year there were zero. The median size has grown over the past few years, though, from $41 million in 2012 to $191 million the next year to $260 million in 2014. The median for 2015 won’t be official for another eight months, until all the data is in, but the median for the contests expected in first half of 2015 is $623 million. That compares to a median of $255 million for the first half of last year.

There are far fewer contests going to a vote at companies with a market cap of less than $10 million. And the number of targets greater than $1 billion market cap which actually go to a vote has grown substantially as well: in 2013, there were 13 of them, or 35 percent of total contests which went to a vote. Last year the number dipped down to 10 companies, but 10 is still a very big change from prior years when one or two a year was generally the max. For the first half of 2015, ISS anticipates that as many as 15 will go to a contested election; the corresponding period last year had seven.

The Biggest Contests for 2015

Beyond DuPont, two of the biggest 2015 contests on the slate so far are at mattress manufacturers. Select Comfort, which is $1.8 billion in market cap, is facing a contest from Blue Clay Capital at its May 22 meeting. And Tempur Sealy, which is $3.4 billion in size, is facing a Vote No from H Partners at its May 8 meeting. It’s not a traditional vote no, however – they want the CEO, the chair, and a third director ousted, after which they’re hoping the board will appoint an H Partner’s executive and one other nominee. Two more are being run by a new activist, called Land & Buildings, which formed after the financial crisis to invest specifically in real estate. REITs don’t usually have contests, but after Corvex succeeded in replacing the board at Commonwealth REIT last year it seems that’s about to change – and Land & Buildings is trying to lead the charge with a May 22 contest at Associated Estates Realty Corp., which is $1.4 billion in market cap. Land & Buildings is also running a contest at MGM Resorts International, a $10.4 billion company, which will go to a vote one week later, on May 28.

ISS is tracking several other meetings in the $1 billion plus category:
– Sandell, which won seats at Bob Evans last year, is looking for seats on the board of Brookdale Senior Living, a $7 billion firm; that shareholder meeting is likely to be in June.
– Shutterfly, a $1.4 billion Internet company, is facing a contest from Marathon Partners at its May 27 meeting.
– Rovi Corp, a $1.9 billion firm whose business is centered on discovery and personalization of digital entertainment, is looking at a contest from Engaged Capital at its May 13 meeting.
– GAMCO is back for the fifth year at $2.7 billion Telephone and Data Systems.
– Barington Capital is looking for seats at The Children’s Place, a $1.3 billion firm whose last proxy contest, half a decade ago, was led by the ousted founder.