Five Key Takeaways from a Banner Year in Proxy Fights
Activist investors stirred up corporate America in 2016. Again.
In an attempt to seek out controlling stakes in companies and influence decision-making, activist investors—also known as dissidents—continued to aggressively target boardrooms during the 2016 proxy season. A total of 110 proxy fights were announced this year, with 98 having taken place as of October 21—an increase of 8% over the same period in 2015. More than 100 different investment funds (activists) were involved in those contests, with many forming dissident “wolf-pack” groups that focused on common targets. Other funds engaged in multiple campaigns simultaneously.
Of the 98 contests this year, 17 involved relatively new activist investors that launched their first campaigns within the last three years. Some, such as Ides Capital Management, Lion Point Capital and Newtyn Management, launched their very first activist campaign this year.
Why all the fighting? For one thing, a rise in institutional support coupled with an environment with low interest rates plus the performance of these types of hedge fund products has created new opportunities for this kind of investing. Additionally, a success rate* averaging 56% in each of the past nine proxy seasons is appealing. This year 59% of the fights were successful. Altogether, 84 dissident board nominees found seats at 42 companies.
Here are five of the most intriguing fights of the past proxy season involving both winners and losers, and key takeaways from each.
1. Pressure Leads to a Blockbuster Deal
Activist: Starboard Value
Meeting date: 6/30/16
Seats sought: 9 Seats granted: 4
The fight: Starboard publicly disclosed its stake in Yahoo in 2014, and became the most vocal activist in Yahoo’s stock. In late November 2015, Starboard began pushing for a spin-off/sale of a business division, with intention to consolidate the Company as the media industry is undergoing a massive wave of transformation. The request escalated to the replacement of board members and ultimately, the headline-making $4.83 billion purchase of Yahoo’s core business by Verizon Communications.**
Key takeaway: Throughout Starboard’s tenure in Yahoo’s stock, it noisily pressured its M&A plans including a combination with AOL, which ultimately came to fruition under Verizon. Upon closing, the combined Verizon-Yahoo would be the third largest digital ad network in the US.
2. The Machines Rise Up
Activist: Red Mountain Capital Partners
Target: iRobot Corporation
Meeting Date: 5/25/16
Seats sought: 2 Seats granted: 0
The fight: iRobot (maker of the Roomba vacuum cleaner and other home robotics) accommodated many of Red Mountain’s requests in 2015. However, iRobot resisted Red Mountain’s 2016 proxy fight by aggressively promoting its two seat members, who were up for reelection, to shareholders. iRobot touted the members’ expertise within the robotics industry, and thus the Company’s focus on the future.
Key takeaway: Red Mountain lost the proxy contest for the two seats even with the backing of two major proxy advisers, ISS and Glass Lewis.
3. A White Knight Arrives
Meeting date: 8/2/16
Seats sought: 8 Seats granted: 0
The fight: In May, Medivation received an unsolicited bid from Sanofi for $52.50/share, valuing the company at $9.3 billion. Sanofi sought out the pure-play biopharmaceutical company as an entrée into the oncology space; however, Medivation fought the proposal by unanimously voting against it. Sanofi then launched a proxy fight for a full slate of eight board candidates which Glass Lewis opposed. Nonetheless, Medivation did not fight the proxy contest and opened a sale process to Sanofi who sweetened its bid to $58/share. Celgene, Gilead Sciences Inc., Pfizer, and others additionally entered the running to acquire Medivation. Pfizer came out victorious.
Key takeaway: After Medivation opened up the sale process for Sanofi, Pfizer stepped in with a white knight bid and purchased Medivation for $81.50/share, a 21% premium to its previous Friday’s closing price a total valuation of $14 billion.
4. The Insider’s Game Pays Off
Activist: Corvex Management and Soroban Capital Partners
Target: The Williams Companies
Meeting date: 11/23/16
Seats sought: 10 Seats granted: 0
The fight: Corvex was intimately involved with Williams, holding a sizeable stake in the Company, for the most part, since 2012. The founder of Corvex, Keith Meister, even held a seat on the board in 2014. But, after failing to oust the CEO who refused a merger with Energy Transfer Equity earlier this year, Meister and five other directors including Eric Mandelblatt of Soroban Capital Partners, resigned in July 2016. Just two months later, Corvex publicly urged Williams to add new independent directors and launched a proxy campaign to reconstitute the board. The unique factor of the campaign was that Meister nominated 10 placeholder candidates from his own firm who intended to resign immediately upon election. By the end of September, Williams appointed two new independent directors and Meister dropped the proxy contest. In an odd turn of events, Williams announced shortly after that three additional directors will not stand for re-election in the November 23 annual meeting.
Key takeaway: This year alone, Williams denied a merger offer from Energy Transfer, a prospective takeover from Enterprise Products Partners, and has updated a large portion of its board before its November annual meeting.
5. A Counterpuncher Fights Back
Activist: Barington Capital
Target: Chico’s FAS
Meeting date: 7/21/16
Seats sought: 2 Seats granted: 0
The fight: In May, Barington launched a proxy campaign against Chico’s by nominating two board members. Chico’s responded immediately with two alternative candidates, including Bonnie Brooks, Vice Chairman of Hudson’s Bay Company, and proposed new cost and capital expenditure reductions. Soon after, Barington published a 105-page presentation outlining an action plan for the business’s operations, finances, and compensation practices. Chico’s quickly defended itself, citing its new CEO, Shelley Broader, as the catalyst for change within the company. Chico’s continued to deflect Barington’s offensive and ultimately prevailed, winning large support.
Key takeaway: The ability of Chico’s to effectively communicate its transformation plan to shareholders eliminated Barington’s opportunity to take credit for the operational improvement already underway and allowed the Company to maintain control of its boardroom. As the company continues to reform, activist opportunities dwindle.
Note: All data sourced from FactSet SharkRepellent.net.
* Outright victories, partial victories or settlements by dissidents as a percentage of all proxy fights where an outcome has been reached.
** As of late October, Verizon and Yahoo were in discussions about a sales price alteration following Yahoo’s recently-revealed cybersecurity issues.
© Copyright 2016. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
Senior Managing Director