Takeaways from Activism Defense Strategy – Mock Proxy Battle
Alliance Advisors sponsored the program and put together a panel including Sabastian Niles from Wachtell, Lipton, Rosen & Katz, Steve Frankel of Joele Frank, Cristiano Guerra from ISS and Rob Main from Vanguard. The panel moderator was Waheed Hassan of Alliance Advisors.
Waheed Hassan presented some trends and statistics, which was followed by the panelists’ discussion of the phases and considerations of an activist campaign.
Regarding activist campaigns, much of the focus is small and mid-cap companies; 68% of activist campaigns are at firms with less than a $500 million market cap. Most situations are handled privately and don’t end up with a proxy fight.
Phase 1: Initial Approach
Board should understand the Active Investor’s Interest
Choose a competent Board member to meet with Activist Investor (AI). Shareholder engagement doesn’t mean all board members should talk to investors.
Transparency goes a long way
Take the high road
Phase 2: Disclosure + Engagement
Need to answer the question – “Do we really need to meet with the AI?”
Once a 13D is filed
- Need to show a record of successful performance
Phase 3: Public Engagement
The Board and Management must be aligned
- Have a unified and define definition of success
- Must have alignment between Management and Board regarding strategy and priorities
Must develop a view of the AI’s proposal
- It may contact something you are already working on
Don’t fight your battle in public.
- Is there a compelling case for change and long-term value for the shareholders?
- Which nominee Director can lead the change
- What is the minimally invasive solution
- Listen to your shareholders
Phase 4: Proxy Fight
Voting decisions are made in the last few days
Retail investors are important; however, they are the hardest to reach
It’s important to establish and maintain relationships with Institutional investors
- When it is truly a fight they are the referees
- Institutional investors are the spectators
Some quotes from the panelists:
A good board thinks like an activist, both a short-term activist, as well as a long-term shareholder
Investor engagement is important – ‘sunny day’ engagement, not just when activists get active. However, shareholder engagement doesn’t mean all board members should talk to investors.
Don’t fight your battle just in the public, find third party champions to sell your cause
Sabastian Niles is a Partner at Wachtell, Lipson, Rosen & Katz, where he focuses on rapid response shareholder activism, engagement and preparedness, takeover defense and corporate governance; short-termism in the capital markets and promoting long-term value creation; risk oversight, including as to cyber security and crisis situations; U.S. and cross-border mergers, acquisitions, buyouts, investments, divestitures, and strategic partnerships; and other corporate and securities law matters and special situations.
Steve Frankel is a Partner at Joele Frank where he advises clients on mergers and acquisitions and shareholder activism, as well as media strategy, investor relations and crisis communications. During the past 25 years, he has been involved in numerous takeover battles, friendly mergers and other high-profile situations involving many of the world's most respected corporations. Steve is well-recognized for his depth of experience in the financial services sector and has developed close working relationships with the leading attorneys, investment bankers and journalists covering the space. In addition, he has worked with numerous healthcare, energy and technology companies.
Waheed Hassan, is a CFA - Senior Managing Director, Alliance Advisors where he advises clients in connection with Corporate Governance, M&A transactions, proxy contests, and other contested solicitations. Prior to joining Alliance, he managed the M&A/Proxy Contest research team at Institutional Shareholder Services ("ISS"). At ISS, he provided advisory vote recommendations on 100+ contested M&A transactions and proxy contests. Waheed was involved in several high profile proxy fights (Target, Barnes & Noble, NRG Energy, Office Depot).
Cristiano Guerra is the Head of ISS' Special Situations Research team, which covers contested economic proposals and fights for corporate control. He previously led the US Research team, and prior to that the Latin America Research team, for ISS. In all these roles, he has actively engaged with issuers, shareholders, and other stakeholders regarding investor concerns, disclosure issues and specific governance topics relevant to institutional shareholders.
Rob Main is CFA of Vanguard Investment Stewardship and Head of Portfolio Company Engagement, Analysis, and Voting. Rob leads Vanguard's Corporate Governance team which is responsible for the research, analysis, and voting of over 12,000 proxies across 65 countries each year. Further, the team conducts almost 800 company management engagements on a variety of ESG issues on an annual basis.