NIRI Boston Shareholder Activism Event

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NIRI Boston's October 2013 Shareholder Activism: The Best Defense is a Good Offense Event.

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NIRI Boston Shareholder Activism Event

  1. 1. Shareholder Activism and Proxy Contests Matthew Sherman, President Joele Frank Joseph L. Johnson III Partner Goodwin Procter LLP Scott Winter, Managing Director Innisfree M&A Incorporated Elizabeth Woo, IR consultant and former head of IR at Biogen Idec
  2. 2. 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 consecutive years.  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 2012.  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. 2
  3. 3. 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 3
  4. 4. 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2006 2007 2008 2009 2010 2011 2012 2013 16.2% 14.3% 21.7% 20.2% 29.2% 15.9% 21.0% 6.8% 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. 4
  5. 5. WHO ARE THE ACTIVISTS? “THE WOLF PACK” • 3G Capital Partners • Altai Capital • Appaloosa • 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 • GAMCO • Glenview Capital • Greenlight • Harbinger Capital • Highfields • Highland Capital Management • Icahn Capital • JANA Partners • Jewelcor Management • Karpus Investment Management • Lawndale Capital Management • LCV • 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 • SARISSA • Scepter Holdings • Seidman and Associates • Seneca Capital • Shamrock • SMP Asset Management • Starboard Value (formerly Ramius) • Steel Partners • Stilwell Value • Third Point • TCI • TPG-Axon • Tracinda • Trian • Tudor Investment • ValueAct Capital • Viking Capital • Western Investment • Wynnefield Capital 5 …but many others pile on
  6. 6. Activist Themes 6 Potential M&A Target Investment Thesis Underperforming Companies Businesses with Divestible or Non Core Assets Balance Sheet Capacity / Cash-Rich Situations M&A Operational Capital Structure Sale of Company Goal Divestitures / Break-up Return Cash to Stockholders Change in Management / Board / Structure Change in Operations / Business Strategy • Carl Icahn / CVR Energy • Carl Icahn / Clorox • Elliot / Actelion • Carl Icahn / Mentor Graphics • Carl Icahn /Genzyme • Carl Icahn / Biogen • Train / Family Dollar • Ramius / Luby’s Selected Recent Examples • Third Point/ Yahoo • Carl Icahn / Forest Labs • Pershing Square / Canadian Pacific • 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 Software • Elliot / Iron Mountain • Trian / Heinz • Ramius / Zoran • Starboard / AOL • Carl Icahn / Oshkosh Corp.
  7. 7. Typical Proxy Fight Timeline 7 45 to 40 Days 14 to 7 Days 5 to 2 Days Day 0 38 to 32 Days 31 to 24 Days 21 to 14 Days 10 to 7 Days IR / PR Strategy • One-on-ones with major stockholders • Brief Reporters • Telephone campaign (if appropriate) • 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 letter 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 Stockholder meeting
  8. 8. 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. 8
  9. 9. 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 by activists. 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
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