From Activist Insight
In this article from “Activism Monthly”, recent trends in shareholder activism are tracked and uncovered after a busy third quarter.
Activity rate
As anticipated, the number of Schedule 13D filings (i.e.initial disclosures of US activist positions) fell in quarter three, from 33 in each of the first two quarters to 25 (see figure 1). The number of activists disclosing new stakes increased slightly, however, suggesting a burgeoning field. In 2012’s third quarter, 19 activists filed initial Schedule 13D forms, with Bulldog Investors and Discovery Group accounting for nearly a third between them. In quarter three of 2013, on the other hand, no activist filed more than two, with 23 activists breaching the reporting threshold of 5% of the company’s outstanding shares.
Similarly, the number of activists busily building their positions with amendments to Schedule 13Ds rose from 52 in
the third quarter, 2012, to 60 in the third quarter, 2013. This could indicate greater activity in acquiring and disposing of stakes, or more hands-on campaigns (since 13D Amendments can indicate either that activists have crossed
reporting thresholds or that they have taken their campaign public, for example by sending a public letter to the board).
Either way, the data confirms Carl Icahn as the foremost activist investor in the world. The Chairman of Icahn Enterprises and antagonist of Dell Inc was again the busiest activist, with 33 13D Amendments in the last three months, compared to 21 in the same period last year. Starboard Value was the nearest competitor, with 15 13D Amendments in the three months just gone, and nine in quarter three, 2012.
Activist investors around the world began 81 campaigns in quarter three, an increase of 37% on the same period last
year. The number of companies targeted by activists also grew, but by 30%. The apparent trend of activists making
more detailed public recommendations for the companies they invest in – spotted by Activist Insight earlier in the year
– appears to be borne out by these numbers.
Campaign tactics
Buoyed by increasing publicity and with a number of newcomers determined to make a mark, activists took more
aggressive stances in the third quarter of 2013, when compared with the same period a year ago. Attempts to change the composition of company boards increased from 1 to 4 instances, while the number of campaigns designed to get activists on company boards doubled, rising from 12 to 33.
However, there are signs of a fight back from companies. In 2012, nine of the twelve attempts to gain board representation started in quarter three ended with the company offering the activist seats through the official proxy. In campaigns started in quarter three, 2013, as many activists fought proxy campaigns as were granted proxy access (see figure 2, above).
This will be good news for law firms. Earlier this year, Olshan Frome Wolosky claimed it had had the ‘busiest and most successful proxy season on record’, advising on 21 proxy contests. Schulte Roth & Zabel weren’t far behind, advising on 15 proxy fights.
As in quarter two, activism has also shown itself to be influenced by the widespread expansion of balance sheets. With companies hoarding record piles of cash, the number of pro-dividend or share repurchase agreements has more than
doubled from 6 to 13 between the third quarters of 2012 and 2013.
Featured Tactic — Remove CEO or Board Member
CEOs must fear few things more than being personally singled out for criticism by an activist shareholder. Activists have been successful more often than not, with three out of five seeing off CEOs in the past three months, and six of seven in the same period a year ago. CEOs might be pleased to learn, however, that of campaigns launched in quarter four last year, five activists were unsuccessful and one withdrew their demands from ten attempts to unseat management. Only two could claim full success, suggesting that the tactic might be used more speculatively in the run-up to proxy season.
Removing a CEO or board member is one thing. Replacing them is another, as Dan Loeb and Bill Ackman have recently
discovered. Loeb was reportedly instrumental in the appointment of Marissa Mayer at Yahoo, but the two reportedly fell out, leading Loeb to divest his shares in the company. (For more on Loeb’s attempt to unseat Sothebys’ ‘imperial CEO’, William Ruprecht, see the featured campaign on the back page of the October 2013 Newsletter). Ackman attempts to remove CEOs more often than any other activist (five in the past four years). When he recently complained that too
much of the blame for JC Penney’s leadership choices had been placed on him, the board was unimpressed and faced
him down rather than lose interim-CEO, Myron Ullman.
Bulldog Investors currently have several campaigns targeting company bosses. In particular, the hedge fund would like to fire Firsthand Technology Fund’s Kevin Landis, who Phil Goldstein calls a ‘terrible money manager’. However, as Goldstein readily admits, for his campaign to work, the CEO has to lose the confidence of more than one shareholder, no matter how blunt the activist might be.
“Activist Insight” provides the most comprehensive global information source on activist investors. This includes live alerts on activist investments, over 200 detailed activist manager profiles, unique stats on activist campaigns and proxy battles, and much more. A free monthly newsletter subscription is available on request. See www.activistinsight.com