Shareholder Activism Small Listed Companies Interest Group of the - - PowerPoint PPT Presentation
Shareholder Activism Small Listed Companies Interest Group of the CGI January 2020 Shareholder activism set records for the number of campaigns in 2018/19 in the UK, and for the success of these initiatives. Boudicca professionals will share
shareholder situations in the UK over the last five years. They will explore trends, the direction they expect activists to take and what we can expect to see for small listed companies in 2020.
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Shareholder activism set records for the number of campaigns in 2018/19 in the UK, and for the success of these initiatives.
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1. About Boudicca 2. Shareholder Activism Trends 3. Top Tips for Winning 4. The Future of Shareholder Activism and Q&As Appendices - Case Studies
Adam Rose
Head of Corporate Governance
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Session Overview
At this event, we will look over the impact of shareholder activism specifically in small listed companies and how boards can and should respond. This session will help you to: ▪ Recognise the key activist trends and whether any regulatory changes have given power to activists including: ▪ Stricter investors’ voting policies; and changes to regulatory and advisory frameworks ▪ Understand the impact of recent shareholder activism and key players like the proxy advisers ▪ Develop proactively develop steps your board can take to avoid activist attention ▪ Shape a response to shareholder activism at your company
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Multi-Level Shareholder Engagement
Shareholder Meetings
Analysis of More Than
200 Years Combined Experience
Specialist Support
Global AGMs, EGMs and M&A Transaction
We are a specialist shareholder engagement advisory firm, focused on maximising shareholder votes through progressive proxy solicitation and corporate governance / remuneration advice
ONE GLOBAL SPECIALIST GOVERNANCE ADVISORY FIRM
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PRISM COSEC Acquisition (November-12) Corporate governance and company secretarial services provider 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 BOUDICCA Acquisition (May-18) UK-based specialist shareholder engagement company providing Proxy Solicitation & Shareholder Communications RD:IR Acquisition (September-19) UK-based global Investor Relations consultancy offering wide range of services including shareholder analysis, IR CRM and other consultancy services In-house launch of EQIA
analysis solution in 2009
platform (now owned by Link) in November 2012
Amsterdam | Chennai | Krakow | London | Minnesota | New York
supported 100+ Corporate clients across the FTSE
worked on the highest number of UK Takeover Panel M&A transactions since 2017, providing proxy solicitation services to 50+ deals valued at $100Bn+.
in 2018-19, with an 87% success rate, including:
► for activist shareholders such as: Elliott Advisors
(vs several targets), Western Gate (vs Stock Spirits), Oasis Capital (Premier Foods), LIM Advisers, Julian Dunketon (vs SuperDry) and
► supported issuer clients to defend themselves
from Activist approaches including: Barclays; De La Rue; easyJet; FirstGroup; GKN and Just Eat.
Client Base
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Activist Campaigns Globally in 2019
Source: Activist Insight, Shareholder Activism, 2019 Full Year YoY
# of targets 2014 2015 2016 2017 2018 2019 2018-19 Global 645 785 891 865 946 839
Europe 89 127 163 160 162 135
UK n/a 29 39 34 51 52 +2%
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The Activist Landscape – 2019 Highlights
▪ Global activism is still strong, although an 11% downturn from 2018-19 “After difficult activist fund returns in 2018, in 2019 activists shifted to less risky campaigns with a shorter timeframe: Scuttle/Sweeten campaigns (M&A) with limited downside…” ▪ The number of European campaigns fell 17% to its lowest level in four years in 2019: ▪ More focus on large markets of Germany, Switzerland & France (these are 65% of European campaigns) ▪ M&A breakup activism made up 21% of all public demands at European companies in 2019, a high ▪ UK campaigns stable at 52 and still the largest target market for activists in Europe ▪ A record 147 investors launched new campaigns in 2019, incl 43 “first timers” with no prior activism history Strategy: Activism in Europe shows a clear divergence in strategy of the activists depending on the size: ▪ Larger targets who are high performing are encouraged to accelerate existing plan ▪ Smaller companies with weaker performance where options to “fix” or redefine strategy are effective ▪ mid-cap “sweet spot” of a combination of the two approaches (71% of Q3 2019 campaigns, excl M&A)
Source: Statistics from Activist Insight “Shareholder Activism in 2019” and quote from Lazard’s 2019 Review of Shareholder Activism Link
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The Activist Landscape – Types of Activist
Who are the activists? ▪ Full time activist investors (58%) like Elliott Associates and Starboard ▪ Occasional activists (34%) – traditional active managers ▪ Institutions and Others (8%) ▪ First Timers – 47 new Activist in 2019 Trends ▪ “2019 has witnessed a shift from a few, well-known activists, to a more diversified group of occasional agitators and institutional investors…” ▪ “Traditional institutions and occasional activists now account for almost half of all activism campaigns”
Source: Lazard, Review of Shareholder Activism, Q3 2019 “Diversity of Agitators in Europe”
Other full time
18% 34% 8% 34% 40% = 42% Occasional and institutions
Activists are attracted to the UK as: ▪ They like the market a lower valuations / weak £; Europe/UK new horizon for activism; easy market to enter and leave ▪ Corporate Governance assistance: annual election of directors; no poison pills; shareholder/stakeholder friendly jurisdictions; and increasing cultural acceptance
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The Activist Landscape – Types of Campaign
▪ Activist demand by type – In Europe ▪ 50% Board related, M&A share from 12% to 21% ▪ Activist targets by market cap – In Europe ▪ All sizes of companies targeted, by proportion small companies less targeted directly
Source: Statistics from Activist Insight “Shareholder Activism in 2019”
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Campaign Types
Large-scale shareholder activism sometimes seeks to oust entire boards, more commonly takes issue with specific areas: ▪ Board related (50%) Committee membership and director re-election ▪ Auditor issues ▪ Executive pay ▪ Concern over company strategic direction ▪ Equity issuance ▪ Share issuance proposals ▪ Employee board representation In many cases the campaign is resolved before moving towards a public contest The Activist is playing a more common role in M&A activity by pressuring to: ▪ Sell the Company (31%) - Agitate for sale of target or encourage industry consolidation ▪ Break-Up / Divestiture (31%) - Agitation for a divestiture of a non-core business line or company breakup ▪ Scuttle or Sweeten Existing Deals (38%) - Entry into a live M&A situation to improve deal terms or block an ill-perceived deal from proceeding
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Activist Campaign Research
▪ Activist shareholders will spend considerable time on research before activating a campaign ▪ Activists develop detailed attack strategies and vote projections – to determine the most ‘winnable’ resolutions to propose: ▪ Stake building ▪ Private engagement with management, private and threats of going public / legal actions ▪ Public campaign - letters, dedicated websites, social media & press, threats to propose resolutions ▪ Full campaign - calling a shareholder meeting, requisitioning resolutions, letters to shareholders ▪ Notionally ‘reasonable’ or ‘shareholder friendly resolutions will be proposed ▪ The Activist will analyse the Target shareholder base using public information (e.g. Bloomberg, ThomsonOne) and by purchasing a Register Analysis from Argus Vickers ▪ May consider a s116 / s811 data request for more information when their proxy solicitation plans are ready to enact ▪ Activists may use retail forums (UKSA / ShareSoc) and monitor investor ‘chat’ forums In many cases the campaign is resolved before moving towards a public contest Activists will speak to:
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Classic Activist Tactics
Activist Goal Defences Success Chance
Building Stake & Buying Voting Power
Low to Medium Remove the Chairman
Governance improvements and determination to ensure strong Chairman is present - and that there is a succession plan
Very low Removal of Other Directors / Whole Board
Director/s – Low Whole Board – very low Propose Shareholder Candidates – Independent NEDs
expertise
Strong if one good candidate; low if No.is disproportionate to % Wait until AGM
Low
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Be prepared …
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Run like a defence and be proactive with shareholder and proxy adviser engagement
Produce: clearly articulated strategy; Proxy Risk Assessment; shareholder engagement Plan and
Shareholder Event
Continuous shareholder analysis and engagement Notice of meeting and media preparations Control the event Plan for: Q&As; the activist will attend; will produce new letters to shareholders
Understand your shareholders Shareholder risk and vote analysis – Monitor the Register Steer your strategy Rally Support Proxy and corporate governance advisory Shareholder engagement Start
Assemble the team – brokers, legal, PR, proxy advisers
Proxy methodology Plan and actions to win
Analyse the shareholder base Provide solutions for targeting the different shareholder constituencies Identify the likely concerns of shareholders and proxy advisers Agree shareholder targets with the client and advisory team and disseminate messaging Manage and engage with the relevant proxy advisers Track intentions and votes
The proxy fight … Role of the proxy consultant
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Importance of covering all bases in a proxy fight
Understand Your Shareholders Preparation and Data Analysis
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Proxy Advisers
The advisers influencing your Institutional shareholders
ISS, Glass Lewis, IVIS
Hermes, GES, PIRC
forum - The Investor Forum
advisers - ShareSoc, UK Shareholder Association.
by client’s IR team, and corporate governance and back office by Boudicca
day of release of notice of meeting
governance road show and proxy solicitation.
through internal communications
actions aided by Boudicca for proxy process and tracking
proxy ‘clinics’ to stimulate awareness and voting.
undertake calls and mailings to underlying retail share owners
telephone proxy solicitation and in-office proxy ‘clinics’
advisers
underlying share
and provide analysis
Advisory/Discretionar y Investment Managers and encourage voting
accounts and trading positions in a similar way to PCBs
(who hold mostly CFDs and SWAPS) - determine ability to vote.
Institutions Retail
(Directly Registered)
Custody, trading, hedge funds other shareholders
Likeliest source of votes and influenced by Proxy Advisers Low impact by number of shares - important due to the number of individuals Holdings on behalf of individual underlying beneficial holders Likely to only vote in exceptional circumstances, e.g. contested/complex M&A
Private Client Brokers (PCB) Directors and employees
Often last to vote if not prompted
Manage risks and maximise opportunities Plan and execute a tailored strategy Predict scenarios and probable outcomes Identify shareholders with issues with resolutions Inform your investor relations strategy
A detailed analysis of each investor constituency allows us to:
Poll Question 1: What is the average reach of the Proxy Advisers (ISS, Glass Lewis, IA/IVIS, etc.) for 110 FTSE All- Share companies analysed in 2019?
60% of more
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Source: Boudicca analysis of average proxy adviser influence as a % of share capital at 110 UK companies from 2018-2019
0.4% 0.6% 16.7% 20.5% 44.1% 1.4%
48% = Average PA reach of all 110 UK companies (55% for FTSE350 members)
logged by investors
proxy contest teams of ISS and Glass Lewis
compelling than other side
and PIRC will provide draft reports to the company and IVIS will if they ‘red-top’ the event, but Glass Lewis will not
these with the proxy advisers – proving ‘factual’ errors can over-turn negative recommendation
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Poll Question 2: Favourite topic to discuss in the Q&As
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Boudicca Proxy Consultants Victory through intelligent shareholder engagement Thanks for listening!
Sheryl Cuisia – Managing Director
Adam Rose – Head of Corporate Governance & Industry
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Case Study – Premier Foods / Oasis Capital
Background ▪ In 2016 Premier Foods received a bid approach from McCormick, with an indicative price of 52p which later increased to 65p. ▪ After conducting Due Diligence, McCormick did not proceed with the Offer. ▪ A number of Hedge Funds, Including Oasis, bought into the stock during this period. ▪ One of the larger shareholders, Hong Kong based Oasis Capital, was granted a Board seat which was held for a short period. The Challenge ▪ The shareholder base comprised a number of disgruntled hedge funds who blamed the CEO for the failure of the McCormick bid and subsequent poor share price performance. The CEO became the target of a ‘vote no’ campaign. ▪ Strategic holder Nissin Foods, with a 17% stake, had the potential to be controlling stake for M&A and a challenge for an Activist to overcome were they to vote with Management. ▪ Through modernisation of the business Premier foods has moved from a 40,000+ workforce to less than 3,000, the majority of any profit is essential in order to service debt liabilities arising out of the 3 Bn Pension Fund for the formerly large workforce. The Outcome ▪ Whilst the CEO was re-elected at the AGM with 59.01% support, three months after the AGM he left the Board. Type Activism Vote requirement 50%+1 of shares cast Market Cap 301m Date 18 July 2018
Premier Foods boss Gavin Darby heads for exit after battle with activist. The Evening Standard, November 2018
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Case Study – Premier Foods / Oasis Capital (ctd.)
5 Year Premier Foods plc share price performance. Source: LSE
McCormick Exploratory Bid 2018 AGM CEO Departs
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Background ▪ History of U.S. activist interest in forcing Strategic change: Sandell (2013); West Face Capital (2017) Coast Capital Management LP (2018/19) – targeted asset sales i.e. spin-off school bus, transit, and Greyhound The Challenge ▪ Defeating 14 resolutions proposed at Requisitioned GM - to remove 6 incumbent directors and appoint 7 new directors ▪ Overcome ISS support for two resolutions, their supported candidate was not eligible The Solution ▪ A concise, compelling outline of the Company’s governance and strategy. ▪ Evidence current Board members key skills, how they fit the strategy, activist candidate research and counter governance arguments ▪ Evidence of engagement with Activist and a detailed critique of their proposals ▪ Engagement with shareholders and proxy advisers to reassure them of the Company’s direction – large scale proxy solicitation campaign, turnout was almost 84% The Outcome ▪ Shareholders voted decisively against Coast Capital’s attempt to take control of the Company by defeating all of the resolutions. Voter turnout 83.69% of the total number of votes eligible ▪ Later Chair Jim Winestock and Imelda Walsh resigned. ▪ The ISS supported candidate was not eligible to stand, but post event David Martin appointed to become Chair (15 Aug) Type Requisitioned GM Vote requirement Majority Deal Value n/a Event 14 shareholder resolutions Year 2019
Shareholders voted decisively against Coast Capital’s attempt to take control of the Company by defeating all of the resolutions
RNS of 25 June 2019
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Case Study – Ventus 1 and Ventus2
Background
activist shareholders, led by Nicholas Curtis, in July 2019 ahead of the AGMs in early August 2019 (held on 9 August 2019) The Challenge
including:
conducted by the activists. The Solution – The Boudicca program
activists’ candidates for directors;
The Outcome Following Boudicca’s campaign for both VCTs: Ventus 1 - all activist resolutions were voted down; Ventus 2 – all bar 1 activist resolutions were voted down.