Shareholder Activism: Hanley & Associates Forum

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Shareholder Activism: Hanley & Associates Forum

  1. 1. Shareholder Activism Hanley & Associates Forum December 11, 2008 Keith V. Mabee Vice Chairman, Dix & Eaton
  2. 2. Proactive Investor Relations What To Emphasize In Today’s Environment <ul><li>Clarify your company’s value proposition as an investment by emphasizing and properly articulating: </li></ul><ul><ul><li>Corporate growth and capital allocation strategy </li></ul></ul><ul><ul><li>Value drivers behind results and future “desired state” </li></ul></ul><ul><ul><li>Targeted financial and operational performance metrics </li></ul></ul><ul><ul><li>Distinctive tangible and intangible assets: what sets your “investible story” apart </li></ul></ul><ul><li>Build and maintain good relationships with key media </li></ul><ul><li>Recent research studies of buy-side analysts suggest that effective IR programs contribute a median premium of 10 percent to valuation, while ineffective IR programs are thought to cost a median discount of 15 percent to valuation, and intangibles can account for 30 – 50 percent of valuation </li></ul>
  3. 3. Characteristics of Activist Hedge Fund Targets What Attracts An Activist To A Company? <ul><li>Financial/Operational </li></ul><ul><ul><li>High cash balance, stable cash flow, low debt levels, low book-to-market ratio, underperforming line(s) of business, underutilized assets </li></ul></ul><ul><li>Management </li></ul><ul><ul><li>Diminished investor confidence, remaining in power despite operational issues or lack of strategic direction </li></ul></ul><ul><li>Ownership </li></ul><ul><ul><li>Heavy institutional concentrations, dispersed ownership, limited insider ownership </li></ul></ul><ul><li>Governance </li></ul><ul><ul><li>Inadequate board composition, limited independence from management, insufficient attention to shareholder proposals or investor concerns, a history of reporting, accounting and/or governance issues </li></ul></ul><ul><li>Triggering Events </li></ul><ul><ul><li>Restructurings, cyclical downturns, change in CEO/Chairman/Board, public/investor vulnerability by association </li></ul></ul>
  4. 4. Activist Hedge Funds At Work What To Expect If You Are Targeted By An Activist <ul><li>Pre market meltdown - Communication of proposals intended to enhance shareholder value </li></ul><ul><ul><li>Board Presence (49%) </li></ul></ul><ul><ul><li>Sale of Company or Assets (44%) </li></ul></ul><ul><ul><li>New Management Team (21%) </li></ul></ul><ul><ul><li>Share Repurchase (20%) </li></ul></ul><ul><ul><li>M&A Bid (9%) </li></ul></ul><ul><ul><li>Elimination of Defense Mechanisms (8%) </li></ul></ul><ul><ul><li>Special Dividend (6%) </li></ul></ul><ul><li>Use of aggressive actions until a settlement is reached with the company or the proposal is contested through a proxy solicitation </li></ul><ul><li>Going public with letters to the Board, progressive SEC filings, rumor mongering, press releases/story placements </li></ul><ul><li>Note: Research obtained from Morgan Joseph </li></ul>
  5. 5. Tactical Planning and Execution How To Prepare For An Activist Attack <ul><li>Establish a team of relevant outside advisors </li></ul><ul><li>Develop a contingency communications plan </li></ul><ul><li>Identify and be aware of triggering events </li></ul><ul><li>Actively monitor shareholder base </li></ul><ul><li>Know and understand current shareholder perceptions </li></ul><ul><li>Leverage credibility with investors, media, regulators, communities, employees </li></ul><ul><li>Be willing to listen and negotiate prudently, when appropriate, to give the Board time to exercise their fiduciary responsibilities fully </li></ul>

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