February 8, 2019

Activism: Proxy Fight Reimbursements Skyrocket in 2018

This Activist Insight article says that corporate reimbursements of expenses incurred by activists in proxy contests were way up last year. Here’s an excerpt:

The average reimbursement paid by companies to activist investors for proxy solicitation costs increased dramatically last year. U.S. companies disbursed an average $431,831 to cover activists’ campaigning costs in 2018, nearly three times the average in 2017, according to data compiled by Activist Insight Online.

The growing bill comes as the number of settlements has swelled; as many as 142 settlements were reached in 2018 versus 119 in the prior year. In part, 2018’s increase in costs could be explained by the fact that there were more reimbursements at mid- and large-cap companies, which totaled $10.4 million in 2018 compared to $1.5 million in 2017.

Most reimbursements involve small cap companies, but the article speculates that more reimbursements by mid and large-cap companies may account for the spike. Longer campaigns may also be a factor, with campaigns taking an average of 82 days to reach a settlement in 2018, compared with 79 days in 2017. The article also says that the increased reimbursement may reflect more advance preparation by small cap activists – including retaining counsel before launching a campaign.

The article reviews notable large-cap campaigns where activists obtained reimbursements, and addresses how institutional investors may react to reimbursement requests.

John Jenkins