The Deal

Frank Aquila discusses his work for Tiffany’s on its sale to LVMH, for AmGen on its purchase of Otezla, and for Novartis on its billion purchase of Medicines Co. as well as his favorite spots in New York, Hong Kong and Tokyo in the Drinks with The Deal podcast with David Marcus.

Retail investors are being harmed by essentially secret IPO protection deals still-private companies are reaching with mutual funds. At least that’s the view of Columbia Law School professor John Coffee, who spoke with The Deal for its Activist Investing Today podcast about so-called IPO ratchets — contracts some mutual funds are receiving entitling them to additional shares in the event an initial public offering falls below the valuation reflected in the final private equity round. In a wide-ranging conversation, Coffee explained that public investors can suffer dilution while the IPO itself is at risk of becoming overpriced. He argued adequate disclosure of the details of these ratchets could discourage their use. On the podcast, Coffee offered shocking details of what a particular ratchet would have given Softbank Group Corp. had WeWork Cos. debuted earlier this year. He also argued WeWork share ownership and voting structure produced a particularly egregious example of why it is dangerous to give a founder, in this case ex-CEO Adam Neumann, too much power.“ This is the most extreme illustration of what can happen when you lock up control in this fashion,” Coffee said. Congress or the Securities and Exchange Commission, however, won't ban these kinds of dual-class share structures giving founders control anytime soon, Coffee said.

The former Citi tech investment banker and author of 'How Money Became Dangerous' talks with The Deal’s David Marcus about working at Disneyland in the 1980s, being a tech banker in after the dot-com crash and investing in influencers.

Diana Moss, president of the American Antitrust Institute, suggested that financial activists are exerting pressure on companies to merge even though they carry a high amount of antitrust or other regulatory risk.

PJ Solomon’s Marc Cooper talks about brand authenticity, the challenges of being a CEO and the joys of the half-bottle.

Jeffrey Pierce, managing partner at activist fund Snow Park Capital, discusses his experiences with agitation at an Australian REIT and gives commentary the recent situation between Elliott and BHP as well as nuances to Australia’s federal corporate governance system on the Activist Investing Today podcast.

The top proponent of shareholder proposals spoke to The Deal’s Activist Investing Today podcast about what he thinks would happen if the nation’s securities regulator made it more difficult to submit proposals on environmental, social and governance issues.

Goodwin On CEO Lobby’s ‘Stakeholders’ Push -The chief of the Applied Corporate Governance Institute told The Deal that Milton Friedman’s 1970 doctrine of shareholder primacy is misunderstood and that the Business Roundtable’s recent ‘stakeholders’ statement of purpose may have a hard time enduring the next recession.

Activist funds face an uphill effort getting the votes they need to effectuate change. That’s the view of Mark Roe, professor of Law at Harvard Law School. Roe spoke with The Deal for its Activist Investing Today podcast about why he thinks that observers should be wary about blaming activist hedge funds for perceived short-termism in the markets. “They [activists] have to have a really persuasive explanation for why something should change in their target company, enough so that index funds, pension funds and others, who initially are inclined to favor management, back their efforts,’ Roe said. In a wide-ranging conversation, Roe suggested that there is a widespread, possible misperception that the public stock markets are particularly short term, with hikes in buybacks and cuts in research creating problems in corporate America. However, Roe argues there is mixed data on the subject. He points out that capital expenditures are down everywhere in the developed world, but less so in the U.S. “There is something else going on,” he said. “Activist engagements are up over the past 10- or 15 years. R&D is up significantly over the past 10 or 15 years.” Roe reviews the concept of so-called “loyalty shares,” which give investors more votes the longer they hold shares. The approach, known as time-phased voting, has long been common in France. “The experience in Europe seems to be that the loyalty shares don’t promote long-termism, but they do facilitate continuing control by founders over a long period of time,” Roe said. “Speaking of activists, the most immediate impact is that activists would have a lower percentage of the vote because they haven’t held shares for two years prior to their campaign typically.”

Some settlements reached between activist hedge funds and corporations represent an “unconditional surrender” by the targeted firm rather than a truce. At least that’s the view of State Street Global Advisers' vice president of the asset stewardship team Philip Vernardis, who spoke with The Deal for its Activist Investing Today podcast about why he thinks companies should do a better job of speaking to their long-term holders (Read: State Street) before reaching agreements that add insurgent-backed director candidates to corporate board. “With shareholder activism rising in recent years…, we’ve also have seen companies entering into settlement agreements with activists more often and much faster than ever before,” Vernardis said. “These agreements are being negotiated between companies and activists behind closed doors, therefore without the voice of long-term investors. In some cases, they resemble an unconditional surrender by the company…” In a wide-ranging conversation, Vernardis said State Street, which has $2.8 trillion in assets, is urging companies to set up longer standstill agreements with fund managers, so hostilities can’t re-emerge quickly in subsequent years. He also believes companies should require activists to hold shares for longer periods “to align them with longer-term shareholders.” Directors affiliated with the activist should tender their resignation if the activist’s stake falls below certain thresholds, he added. Corporate governance is another big issue for State Street. Vernardis notes that the index fund screens corporate directors by the length of their tenure and whether companies have staggered director elections as well as other factors. Since 2014 State Street has voted against over 1200 companies over board refreshment issues. “It’s always about board accountability,” he said. “Annual elections can help increase accountability within a firm, so we take that into account.” Finally, Vernardis also explained State Street’s policy when it comes to the growing trend of corporation’s conducting IPOs giving insiders control of the vote, a major accountability issue for the fund.