The Deal

A recent proxy season found that the median market capitalization of companies targeted by activist investors was well below $300 million. That’s according to Duncan Herrington, a veteran adviser in the activist investor world, who talked to The Deal’s Activist Investing Today podcast about a shareholder activist advisory practice he recently launched at middle market investment bank Raymond James. Herrington argues that bigger bulge bracket banks issue marketing materials on trends with campaign data that only includes companies with a $100 million-plus or $1 billion-plus market capitalization. “They are indicating what is most relevant for their clients,” Herrington said. “That leaves a large chunk of the [smaller] market out.” Herrington said. Herrington offered his thoughts on what kinds of companies are most susceptible to an activist threat as well as the latest trends in banking and cross-border activist campaigns.

Lead independent directors at U.S. corporations have become more important, especially when it comes to “clubby” boards. That’s the view of Brian Stafford, CEO of Diligent Corp., a board management software company, who spoke with The Deal's Activist Investing Today podcast about a trend of lead independent directors meeting with shareholders and why it often takes scandals – like those witnessed at Wells Fargo, Wynn Resorts and Rite Aid -- to drive boardroom shakeups. Stafford explains that an activist hedge fund often seeks to find a lead independent director privately to see if he or she is willing to discuss their point of view. He also said 2019 will bring more diverse boards, higher-quality director serving on fewer boards overall and a spike in outside advisers to corporate boards. “The lion’s share of your understanding of how the company is performing is filtered through the company,” he said. “When an activist shares a stat that we’re underperforming our comp set we’re not surprised because we were always given a different set of comps.”

Institutional investors aren’t afraid to tell companies that shareholders should be permitted to buy as many shares as they want as long as they don’t breach antitrust limits. At least that’s the view of MacKenzie Partners’ Bob Marese, who spoke with The Deal’s Activist Investing Today podcast about why a corporation may experience collateral damage when they install a poison pill in response to an activist. In a wide-ranging conversation, Marese offered up his views on why companies engaging in M&A should do more to prepare for activists. He also explained why Elaine Wynn was so successful in her “no vote” campaign at Wynn Resorts.

Activist hedge funds seeking board control essentially want corporations to give them "the keys” to businesses. As such they need to prove they have qualified director candidates and an in-depth understanding of their targeted company. At least that’s the view of Cristiano Guerra, head of the Institutional Shareholder Services Special Situations Research, who spoke to The Deal's Activist Investing Today podcast about why activists can't just point to the problem and say "trust us, we'll get it right." Guerra offered up a behind-the-scenes look at how ISS sets up meetings with companies and their adversaries, what impact benchmark policies have on contests and why the adviser thinks universal proxy cards make sense.

The director of John Weinberg Center for Corporate Governance spoke to The Deal’s Activist Investing Today podcast about why he believes Third Point’s Dan Loeb is fortunate for getting what he got in a settlement with Campbell Soup, considering that opponents to his efforts controlled 41% of the equity. Loeb’s success at installing two dissidents on the company’s board is quite significant because it means “you will have independent voices in the boardroom.” Elson also argued that shareholders have “practically” no rights when it comes to a new board structure at Dell Technologies.

Activists seeking to take control of boards don't need to have a CEO candidate in mind but they should produce a clear position about what they would do on day one. At least that's the view of Juan Bonifacino, director of shareholder activism defense at boutique investment bank Stifel. Bonifacino spoke to The Deal's Activist Investing Today podcast about why activists seeking to take control of boards need to provide a really compelling reason to forgo the "checks and balance" position that would come with a minority slate. The boutique investment banker spoke about Third Point's director battle at Campbell Soup as well as why he thinks companies and activists will need to spend more time talking to index funds in the years to come. He also offered up some pros and cons associated with hostile bids coupled with proxy contests. "Change of control [contests] really ratchet up the risk for a lot of unintended consequences for a company," Bonifacino said.

Timothy Doyle, the general counsel of the corporate-backed American Council for Capital Formation, spoke to the Activist Investing Today podcast about two new studies the group has produced targeting influential proxy advisory firms and “robo-voting” by some institutional investors. Doyle contends that the number of issues ACCF has identified are “just the tip of the iceberg.” He insists that companies either can’t challenge proxy advisory firms before their reports are issued, or don’t have enough time to respond.

Keith Gottfried, chief of Morgan Lewis & Bockius LLP’s shareholder activism defense practice, took some time to talk to The Deal’s Activist Investing Today podcast about how defending the company against an ex-CEO and founder of the business is so different, and perhaps much more difficult, than protecting it from an activist hedge fund. Gottfried’s comments emerge as founder and co-founder activism has skyrocketed in recent months, with high profile campaigns launched at Papa John’s, Wynn Resorts and AmTrust as well as many other companies. According to FactSet, there were 36 campaigns launched by founders, co-founders and former CEOs at companies between 2013 and 2018, so far, including 11 this year so far.

The Activist Investing Today podcast talked to Jim Chadwick, about Ancora’s activist strategy and his recent insurgencies at Hill International and Element Fleet Management. In a wide-ranging interview, Chadwick explains how working with Relational Investors Ralph Whitworth and David Batchelder, prior to joining Ancora, was "the most important factor" in his career of activism. Chadwick provides a bit of the backstory behind how Whitworth and Batchelder became pioneers in the activism strategy. "Today it has become so common, really ubiquitous throughout global markets. Back at the time 1999, when there were the Carl Icahn's of the world, but Relational may have been structured as the first pure-play activism fund," Chadwick said. "I was always fascinated with the way Ralph had conducted himself in the boardroom."

The Activist Investing Today podcast talked to Michelle Applebaum, a former steel analyst who has been nominated by insurgent managers Barington Capital and Land & Buildings for corporate boards, about why she thinks activists' analytics are quite sound. She also explains why activist investors often represent a consensus view of institutional investors, long before management has figured it out.