Shareholder Activism and
Joseph L. Johnson III
Goodwin Procter LLP
IR consultant and former
head of IR at Biogen Idec
Overview and Trends
Shareholder activism continues to grow and thrive.
2012 saw 117 activist filings as opposed to 86 in 2011 and 108 in 2010.
Additionally, $12.5 billion of new money was invested in activist funds in 2012.
Over the last three years, over $40 billion has been invested in these funds.
Assets under management for activist funds rose to more than $65 billion at the end of 2012. Activist
funds have outperformed the weighted composite index for all hedge funds for the past four years.
The 2013 proxy season saw an increase in proxy fights with 87 in 2013 as opposed to 77 in 2012
according to SharkRepellent.Net.
Activists are moving up market.
Activists are also setting their sights on larger targets.
The number of companies targeted that had a market capitalization over $1 billion has increased for three
Thirty-five of the companies targeted in 2012 were companies of this size, a 289% increase over the same
period in 2009.
In 2013, almost 30% of the companies targeted in a financial or board seat activist campaign this year had
a market capitalization over $1 billion at the time the campaign was announced as opposed to 20% in
Activists have been successful in obtaining Board representation.
In contested situations, dissident shareholders have been successful in obtaining at least one Board seat
in over 50% of the contested situations in each of the last five years.
In 2013, activists were successful in 64% of proxy fights according to SharkRepellent.Net.
An analysis of U.S. activism levels in 2012 reveals not only an overall increase in the number of new
campaigns being announced but also an increased willingness by activists to target larger companies.
According to FactSet SharkWatch, the 152 financial and board seat activist campaigns announced in 2012
are the most in any year since 2008. These campaigns, with a stated goal of obtaining board
representation or maximizing stockholder value, have increased 31% over the same period in 2011, where
116 such campaigns were announced.
Activism on the Rise
2006 2007 2008 2009 2010 2011 2012 2013
Financial and Board Seat Activism
The above chart sets forth the percentage of companies targeted in an activist campaign
with a market cap over $1 billion.
WHO ARE THE ACTIVISTS?
“THE WOLF PACK”
• 3G Capital Partners
• Altai Capital
• Atticus Capital
• Barington Capital
• Becker Drapkin Management
• Biglari Capital
• Blue Harbour Group
• Breeden Partners
• B. Riley
• Bulldog Investors
• Cannell Capital
• Carlson Capital
• Casablanca Capital
• Chapman Capital
• Clinton Group
• Coghill Capital
• Coppersmith Capital
• Corvex Management
• Crescendo Partners
• Davis Selected Advisers
• D.E. Shaw & Co.
• Dialectic Capital
• Discovery Group
• Dolphin Partners
• Elliott Associates
• Engaged Capital
• ESL Partners
• Farallon Capital Management
• First Manhattan
• Franklin Mutual Advisers
• Glenview Capital
• Harbinger Capital
• Highland Capital Management
• Icahn Capital
• JANA Partners
• Jewelcor Management
• Karpus Investment Management
• Lawndale Capital Management
• Locksmith Capital Management
• Loeb Capital Management
• Marcato Capital Management
• Mason Capital
• MCM Management
• Mercury Real Estate Advisors
• Millennium Management
• MMI Investments
• Newcastle Partners
• Noonday Asset Management
• Oliver Press
• Pardus Capital Management
• Pershing Square
• Philip Goldstein
• PL Capital
• Raging Bull Capital
• Red Mountain Capital
• Relational Investors
• Roark, Rearden & Hamot
• SAC Capital
• Sandell Asset Management
• Scepter Holdings
• Seidman and Associates
• Seneca Capital
• SMP Asset Management
• Starboard Value (formerly Ramius)
• Steel Partners
• Stilwell Value
• Third Point
• Tudor Investment
• ValueAct Capital
• Viking Capital
• Western Investment
• Wynnefield Capital
…but many others pile on
Potential M&A Target
Divestible or Non Core
Balance Sheet Capacity /
Sale of Company
Divestitures / Break-up
Return Cash to
Change in Management /
Board / Structure
Change in Operations /
• Carl Icahn / CVR Energy
• Carl Icahn / Clorox
• Elliot / Actelion
• Carl Icahn / Mentor
• Carl Icahn /Genzyme
• Carl Icahn / Biogen
• Train / Family Dollar
• Ramius / Luby’s
Selected Recent Examples
• Third Point/ Yahoo
• Carl Icahn / Forest Labs
• Pershing Square /
• Ramius / CPI
• Starboard / Regis Corporation
• Yucaipa / Barnes & Noble
• Carl Icahn / Genzyme
• JANA / McGraw Hill
• Relational / L-3
• JANA / El Paso
• ValueAct / Sara Lee
• Relational / ITT
• Carl Icahn / Motorola
• Ramius / SeaChange
• Elliot / Iron Mountain
• Relational + JANA / Charles River Labs
• Relational / Home Depot
• Carl Icahn / JANA / SAC / Time Warner
• Starboard / Progress
• Elliot / Iron Mountain
• Trian / Heinz
• Ramius / Zoran
• Starboard / AOL
• Carl Icahn / Oshkosh Corp.
Typical Proxy Fight Timeline
45 to 40 Days
14 to 7 Days
5 to 2 Days
38 to 32 Days
31 to 24 Days
21 to 14 Days
10 to 7 Days
IR / PR
• Brief Reporters
• Final Calls / visits
with major investors
File definitive proxy materials, issue press release with 1st fight letter;
Mail “stop look listen” letter
Mail 2nd fight letter, issue press release
Mail 3rd fight letter, issue press release
ISS meetings; Glass Lewis outreach; issue press release with 4th fight
ISS, Glass Lewis decisions: Both parties likely to issue press
releases upon decisions
Mail 5th fight letter, issue press release
Issue open stockholder letters as press
releases, as appropriate
Top Ten “Do’s”
1. Identify and address potential vulnerabilities.
Consider counterstrategies for strategic, operational, financial and governance weaknesses.
It’s OK to co-opt good ideas from your shareholders and make positive changes.
2. Keep your Board informed and constructively engaged.
Lead Director and heads of governance and finance committees may have special roles.
Prepare them for potential attacks on their track records.
Help foster perception that Board and management are working hand-in-glove.
3. Define your core messages / positioning.
Shareholders are most focused on company performance – so establish clear proof on strategy,
operational and financial success.
Get messages out / take actions that will disarm the activist before a public campaign begins.
4. Take the high road – focus on your company’s strengths.
Remember the goal – to win shareholder votes and their confidence.
Be measured in your response; not every argument requires a rebuttal.
Critical to stay on messages and control the forum for delivering the message.
5. Maintain a stance of business as usual.
Settle in – contests can last a long time.
Be tactical in use of management’s time; try to quarantine the issue.
Top Ten “Do’s” Continued
6. Keep your shareholders close.
When it comes to your shareholders – communicate, communicate, communicate – but not always
about the activist or his issues.
Face to face dialogue with your company’s management team trumps phone or email exchanges.
Monitor trading volumes and changes to shareholder base.
7. Be Nimble - Be prepared for rapid response to escalation.
8. Everything you say can and will be used against you.
Activist may seek to solicit information or establish lines of communication with directors.
Even the most innocuous communications can be damaging to a Company and its strategy.
It is critical that the Company adopt a communications strategy and determine who is allowed to
speak for the Company (CEO, Lead Outside Director, etc.) and the message that should be sent.
The Company must deliver consistent messages and speak with one voice.
9. Consistently review composition of your Board.
Do you have correct skill set?
Shareholders expect regular turnover on Board.
If a significant percentage of your directors have 10+ years on the Board, you are open to an attack
10. Be open to discussions with activist.
The contest begins with first phone call / letter.
Engage the activist early on – don’t go into the bunker preparing for battle without first understanding
what you’re dealing with.
Even in fight, there might be room for back channel dialogue.
Create record of engagement. 9