2019 ADVISER AWARDS
HUDSON EXECUTIVE CAPITAL
LAGARDÈRE
HINDENBURG INVESTMENT RESEARCH
ACTIVIST INSIGHT MONTHLY VOLUME 8 ISSUE 11 | DECEMBER 2019 CONTENTS
ACTIVIST INSIGHT MONTHLY | DECEMBER 2019
EDITOR’S LETTER 03 A WORD FROM ELANA DURÉ
2019 ADVISER AWARDS 05 THE TOP LAW FIRMS AND PROXY SOLICITORS IN ACTIVISM IN 2019
GOODBYE TO ALL THAT 18 ACTIVIST IN FOCUS: HUDSON EXECUTIVE CAPITAL
LOSING CONTROL 21 CAMPAIGN IN FOCUS: LAGARDÈRE
UPGRADE 23 VULNERABILITY PROFILE: KAR AUCTION SERVICES
THE NEW YARDBIRD 25 SHORT ACTIVIST IN FOCUS: HINDENBURG INVESTMENT RESEARCH
SHORT NEWS IN BRIEF 27 DEVELOPMENTS FROM ACTIVIST INSIGHT SHORTS
NEW SHORT INVESTMENTS 28 RECENTLY DISCLOSED POSITIONS FROM ACTIVIST INSIGHT SHORTS
BENIGN ACTS 30 ESG CORNER
UPCOMING EVENTS 31 CONFERENCES, EVENTS, AND MEETINGS TO LOOK OUT FOR
NEWS IN BRIEF 33 RECENT UPDATES FROM ACTIVIST INSIGHT ONLINE
NEW INVESTMENTS 36 RECENTLY DISCLOSED POSITIONS FROM ACTIVIST INSIGHT ONLINE
MOST READ 38 THE MOST POPULAR STORIES FROM ACTIVIST INSIGHT ONLINE
MONTHLY SUMMARY 39 THE WHAT, WHERE, AND HOW OF ACTIVIST INVESTING
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ELANA DURÉ, SENIOR FINANCIAL REPORTER ELANA DURÉ AT ACTIVIST INSIGHT. [email protected]
As the year ends, we reflect on 2019’s slew of campaigns, Georgeson, and Greenbrook Communications. While including Third Point Partners’ bout at Sony and Elliott activist activity was slightly down in Europe this year – with Management’s bid at AT&T. Even the fourth quarter is seeing just 117 companies publicly subjected to activist demands its fair share of action, with Carl Icahn’s promise to launch as of September 30, compared to 134 during the same a proxy contest at Occidental Petroleum and his push for period in 2018 – experts still see plenty of opportunity for Xerox to merge with HP. Plus, new campaigns at Valaris, activism on the continent. The U.K. saw a record year, Elliott Instructure, and Altran. Based on the end of this year, 2020 Management focused heavily on Germany, and companies is sure to be an even more exciting one! across Europe were involved in contentious M&A.
As in years past, we have dedicated this December issue to We are now lining up our publication schedule for next year the advisers that work behind the scenes on behalf of activists and are eager for your organization to join us. To learn more and companies. Our advisers league table recognizes the about opportunities for your firm to create a report with players most active in the space. Congratulations to Olshan Activist Insight, click here. Potential topics include Asia, Frome Wolosky and Okapi Partners, who ranked first in their Canada, and governance. categories for overall activist campaign involvements in 2019. Last month, we also produced a live blog on Activist Insight For those wondering how they can participate in the Online tracking the most notable investments disclosed before rankings, we accept submissions year-round. We also do the latest 13F deadline (big moves include Trian Partners periodic data drives and a final push in early October of each ditching its holding in PPG Industries and Pershing Square year. To keep us informed of your representations, please Capital Management exiting Automatic Data Processing.) ask your marketing teams to add data@activistinsight. Plus, we provided a summary spreadsheet of the 13F com to their mailing lists. disclosures. In the third quarter, dedicated activists invested in 12 companies Activist Insight Vulnerability previously predicted Elsewhere in the magazine, we look at the evolution of would attract activist attention. Amber Capital’s campaign at French media conglomerate Lagardère, which started amicably and progressed to a Be sure to listen to our latest podcast episodes if you haven’t bitter court battle. Amber is pushing the firm to improve already, featuring a reflection on Starboard Value’s its corporate governance and change its strategy, but victory at Darden Restaurants and a conversation Lagardère claims the activist’s “destabilization” campaign with Driver Management’s Abbott Cooper. If you or has led to a drop in the stock price. With the French your firm would like to be featured on a future episode, government already considering putting up roadblocks to please email [email protected]. activism, the potential for the situation to become a focal point in French business is high. And with that, we hope our readers have a wonderful holiday season and a happy new year. Look out for our seventh This issue of Activist Insight Monthly also profiles Douglas annual review in early 2020. Braunstein’s Hudson Executive Capital, which launched its first-ever proxy contest at USA Technologies in October. In [email protected] addition, the magazine features an in-depth look at short @ActivistInsight seller Hindenburg Investment Research, which focuses on exposing fraudsters. Plus, learn about Canada’s recently codified corporate governance practices.
Beyond the magazine, we recently launched Activist Investing in Europe 2019 with Skadden, Citigroup,
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START YOUR FREE TRIAL AT WWW.ACTIVISTINSIGHT.COM Although 2019 saw a slight dip in the number of companies publicly subjected to activist demands compared to last year, according 2019 to Activist Insight Online, advisers in the space told Activist Insight Monthly that they were just as busy as ever – if not more so. Many noted that 2019 saw an uptick in non-traditional or first-time activists advancing demands at companies. In ADVISER addition, experts in the space noted that few situations went to a vote this year, with the preference of both parties to settle, formally or otherwise. AWARDS “I think the bias of companies is always to settle and that’s always plan A,” Kai Liekefett, co- chair of Sidley Austin’s shareholder activism practice, told Activist Insight Monthly. “But in some situations, the dissidents are just widely unrealistic, and they’re stuck in their positions and they just want to fight.”
OUR ANNUAL ADVISER AWARDS DRAW ON THE COMPREHENSIVE COVERAGE In addition, activism continued to expand globally with many U.S.-based funds looking for OF ACTIVIST INSIGHT ONLINE IN HIGHLIGHTING THE MOST ACTIVE LAW cross-border opportunities. The U.K. and Japan were popular destinations this year. “For AND PROXY SOLICIATION FIRMS IN SHAREHOLDER ACTIVISM OVER THE PAST this type of assignment, success requires both a global and local perspective,” Michael 12 MONTHS, AND THE ADVISERS BEHIND SOME OF THE BIGGEST ACTIVIST Verrechia, Morrow Sodali’s managing director of activism and contested situations, said. CAMPAIGNS OF 2019’S PROXY SEASON. 2019 also saw high opposition to M&A in various forms. “I think it’s reasonable IN THIS FEATURE, ACTIVIST INSIGHT FIRST PROFILES THE MOST PROLIFIC LAW to expect more of that going forward,” Verrechia added. AND PROXY SOLICIATION FIRMS BY TOTAL CAMPAIGN INVOLVEMENT BEFORE REVEALING THIS YEAR’S WINNERS IN FOUR CATEGORIES. THE ACTIVIST INSIGHT 2019 ADVISER AWARDS LAW FIRMS BUSIEST FIRMS BY TOTAL CAMPAIGN INVOLVEMENT
OLSHAN FROME WOLOSKY TOTAL CAMPAIGN INVOLVEMENT: 105 KEY CONTACTS: ANDREW FREEDMAN, STEVE WOLOSKY
For the fifth consecutive year, Olshan placed first in our law firm rankings for overall involvement, representing activists in a record number of campaigns. “2019 was plenty active,” Andrew Freedman, co-head of Olshan’s activist & equity investment group, told Activist Insight Monthly, adding that he believes 2020 will be even busier.
Olshan worked on Toby and Derek Rice’s comeback contest at EQT, which saw the first dissident majority slate elected through a universal ballot. The New York-based law firm also represented Legion Partners Asset Management, Macellum Advisors, and Ancora Advisors in their campaign at Bed Bath & Beyond. After just a few months, co-founders Warren Eisenberg and Leonard Feinstein retired from their roles as co-chairmen, CEO Steven Temares stepped down from the helm, the board created a “business transformation and strategy review” committee, and four activist nominees were appointed as directors.
“Campaigns in general have become more dynamic,” Freedman said. “It’s been less ‘one size fits all’ activism.”
SCHULTE, ROTH & ZABEL TOTAL CAMPAIGN INVOLVEMENT: 45 KEY CONTACTS: ELEAZER KLEIN, MARC WEINGARTEN
For New York-based Schulte, this year was “extremely busy,” according to partner Eleazer Klein, who co-heads the law firm’s shareholder activism practice. “While the overall market going to actual meetings was down, we had a good portion of those campaigns,” Klein said. Schulte had 45 representations in 2019, three more than last year.
Two of the most memorable campaigns for Schulte this year were representing Elliott Management and D.E. Shaw Investment Management in their engagements with Marathon Petroleum and Emerson Electric, respectively. Although both fights settled, there was no formal agreement between D.E. Shaw and Emerson, a common theme this year along with the drop in proxy contests going the distance, according to Klein.
“As parties get more sophisticated both on the activist side and the company side, they tend to understand likely outcomes better and try to resolve their issues without the need to spend the money and incur the distraction of going to a vote,” Klein said.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 07 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS LAW FIRMS BUSIEST FIRMS BY TOTAL CAMPAIGN INVOLVEMENT VINSON & ELKINS TOTAL CAMPAIGN INVOLVEMENT: 41 KEY CONTACTS: LAWRENCE ELBAUM, PATRICK GADSON
A busy second half of 2019 has seen half a dozen consent solicitations, as well as many other types of activism, a trend that has not been lost on Lawrence Elbaum and Patrick Gadson, co-leaders of Vinson & Elkins’ shareholder activism practice.
“For the fourth year in a row, there’s been no ‘off-season’ for companies targeted by activists,” Elbaum, a partner with Vinson & Elkins, told Activist Insight Monthly. “As a result, our practice has seen an unprecedented volume of work, particularly for boards facing increasingly sophisticated and aggressive activism campaigns.”
Indeed, Vinson & Elkins’ representations ticked up from 33 to 41, including a small number of dissidents. “Anyone who still believes there is a ‘peace-time’ or ‘off-season’ needs to give me a call because I have some ocean front property in Nebraska to sell them,” quipped Patrick Gadson, partner-elect at the firm. “From the perspective of an activist, companies don’t wait to underperform until proxy season, so then why should a shareholder wait until proxy season to catalyze change?”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 08 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS LAW FIRMS BUSIEST FIRMS BY TOTAL CAMPAIGN INVOLVEMENT
SIDLEY AUSTIN TOTAL CAMPAIGN INVOLVEMENT: 30 KEY CONTACTS: KAI LIEKEFETT, DEREK ZABA
Sidley Austin remained in fourth place for our adviser rankings, though the number of situations credited to the law firm nearly doubled from last year. “This was the busiest year of my career,” Kai Liekefett, co-chair of Sidley’s shareholder activism practice, told Activist Insight Monthly.
In August, Derek Zaba joined Liekefett in heading the group. “In addition to his much-needed help, Derek also brings skill sets and perspectives that I just don’t have; the perspective of the former activist and investor, which is extremely helpful. He really complements our offering and increases the services that we that we can provide to clients,” Liekefett said.
This year Sidley worked on a handful of high-profile situations, including defending Texas Pacific Land Trust against a trio of activists, Argo Group against Voce Capital Management, and MiMedx against former CEO Pete Petit. The law firm was also rumored to be working with AT&T in its bout with Elliott Management. “It was an extraordinary year because of the kind of campaigns that ultimately kept us busy for long stretches of the year,” Liekefett said.
LATHAM & WATKINS TOTAL CAMPAIGN INVOLVEMENT: 14 KEY CONTACT: JOSH DUBOFSKY
Latham placed fifth in our law firm rankings for the second year in a row, bringing its representations up to 14 from 12 last year.
Josh Dubofsky, a corporate partner at Latham & Watkins and member of the firm’s activism practice, said 2019 has been “a good, strong year on the activism front with lots of interesting fights and engagements.” Latham represented Cerner in its engagement with Starboard Value, which resulted in a settlement for board refreshment and operational targets. The law firm also defended Nevro against Broadfin Capital. The parties agreed to an executive transition and board changes in March.
“The activist calendar is becoming less relevant than it used to be,” Dubofsky said. “We’re seeing round-the-year activism.”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 09 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS LAW FIRMS BUSIEST FIRMS BY TOTAL CAMPAIGN INVOLVEMENT
KIRKLAND & ELLIS TOTAL CAMPAIGN INVOLVEMENT: 14 KEY CONTACT: SHAUN MATHEW
Kirkland & Ellis worked on 14 campaigns in 2019, including prominent M&A situations such as Bristol-Myers Squibb’s defense of its $90 billion acquisition of Celgene, which faced opposition from Starboard Value and Wellington Capital Management, and Callon Petroleum’s defense of its acquisition of Carrizo Oil & Gas against opposition from Paulson & Co.
Kirkland partner Shaun Mathew highlighted the enormous impact that activism is having on M&A markets. “On the one hand, activism continues to play a meaningful role in catalyzing M&A activity, as nearly half of activist demands this year boiled down to some version of ‘just sell the company’ or ‘sell some assets,’” he told Activist Insight Monthly, while noting that activists are also increasingly challenging M&A deals. “Activists are keenly aware that M&A transactions create significant vulnerability because both buyer and seller have so much at stake, and they attempt to exploit that vulnerability to advance their objective.”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 10 OLSHAN FROME WOLOSKY 01. TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 105
SCHULTE, ROTH & ZABEL 02. TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 45
KLEINBERG, KAPLAN, WOLFF & COHEN 03. TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 12
ACTIVIST ADVISORY THE ACTIVIST INSIGHT 2019 ADVISER AWARDS LAW FIRMS ISSUER ADVISORY
VINSON & ELKINS 01. TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 38
SIDLEY AUSTIN 02. TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 24 KIRKLAND & ELLIS TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 14 =03. LATHAM & WATKINS TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 14 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS PROXY FIRMS 01. BY TOTAL CAMPAIGN INVOLVEMENT OKAPI PARTNERS TOTAL CAMPAIGN INVOLVEMENT: 53 KEY CONTACT: BRUCE GOLDFARB
Okapi Partners heads Activist Insight Monthly’s overall proxy solicitor rankings for the fourth year in a row. “2020 will be an active year,” CEO Bruce Goldfarb said in an interview, adding that previous settlements may turn into campaigns in 2020 with the proviso that “political uncertainty” around the world makes it hard to make predictions for markets.
The proxy solicitor worked on fewer large campaigns that went to a vote compared to 2018, notably representing Velan Capital and Cruiser Capital in campaigns at Progenics Pharmaceuticals and Ashland Global, respectively. Cruiser’s campaign is an “indication that the best way to achieve everyone’s goals is to find an outcome that can be thoughtful of all of the different voices,” Goldfarb said. He also believes Velan’s campaign shows the expectation of communicating, as well as executing, plans and ideas well, even in an industry where “investors tend to be very forgiving.”
Goldfarb said he saw an increase in companies willing to settle, altering the landscape of several situations. “Companies and activists find ways to achieve a peaceful outcome much earlier in the process,” Goldfarb said. He expects this trend to continue in 2020, noting that “there may be situations where it is logical for peace to break out all over,” such as the outcome of Elliott Management’s campaign at AT&T.
INNISFREE TOTAL CAMPAIGN INVOLVEMENT: 36 KEY CONTACT: ARTHUR CROZIER
Innisfree ranked second this year, despite increasing its campaign count from last year, when it was level with Okapi. It found itself involved in many of the significant proxy contests of 2019, including Gannett’s defense against MNG Enterprises’ hostile bid, and Verint Systems’ resistance against Neuberger Berman’s attempt to elect a three-person slate to the board. The proxy solicitor also worked with EQT while the Rice brothers fought for control of the board.
On the activist side, Innisfree worked with Kimmeridge Energy Management in its attempt to win three seats at PDC Energy after pushing the firm to pay a dividend, return proceeds from asset sales to shareholders, cut costs, and de-stagger the board. “As has been the case for a while now, the vast majority of activism campaigns are settled before they reach an actual contest; although we did see a number of situations this year where settlements were not reached until after solicitation materials for a contest had been filed,” Innisfree Chairman Arthur Crozier told Activist Insight Monthly.
Crozier explained that Innisfree has been involved in more situations behind the scenes where parties reached an understanding before coming to blows publicly. “It is always difficult to predict how many campaigns there will be and where they will end in their ‘life cycle,’ but it is clear that activism is a useful strategy across markets and will not go away.”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 12 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS PROXY FIRMS BY TOTAL CAMPAIGN INVOLVEMENT
GEORGESON TOTAL CAMPAIGN INVOLVEMENT: 34 KEY CONTACT: CAS SYDOROWITZ
Georgeson’s efforts saw the proxy solicitor jump one place from last year’s ranking to third place. The firm said 2019 was one of the busiest years for activism it had observed and it advised actors as diverse as Japan’s Sakura Sogo REIT, U.S. bank DNB Financial, and New York-based activist Coast Capital in a foray across the pond at FirstGroup.
Cas Sydorowitz, Georgeson’s global head of activism, noted the continued importance of boardroom battles, but also pointed to the increased popularity of activist campaigns against conglomerates that don’t necessarily go to a vote, such as Third Point Partners’ campaign at Nestlé.
British companies may have a lively year ahead of them, Sydorowitz told Activist Insight Monthly. There “will likely be more targets in the U.K. because of ongoing political uncertainty, and the FX rates make some U.K. companies more appealing targets.” Although some situations have shown that activists and companies alike can keep their disagreements civil, like Trian Partners at Ferguson, Sydorowitz thinks U.K. companies are “happy to risk a dispute becoming more belligerent” because costs in U.K. campaigns have not reached the levels seen in the U.S. This is likely to change, however. “The appetite to settle will increase once companies see costs increasing.”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 13 THE ACTIVIST INSIGHT 2019 ADVISER AWARDS PROXY FIRMS BY TOTAL CAMPAIGN INVOLVEMENT
MORROW SODALI TOTAL CAMPAIGN INVOLVEMENT: 26 KEY CONTACTS: MICHAEL VERRECHIA, CHARLIE KOONS
Morrow Sodali’s practice has been growing steadily. It worked on 26 campaigns this year, up from 23 and 19 in 2018 and 2017, respectively. Yet that was not enough for the proxy solicitor to move up from fourth place.
While most of its clients were from the U.S., including Caesars Entertainment and Luby’s in their engagements with Carl Icahn and Bandera Partners, respectively, the firm also had a good hand in Europe. There, clients included Sunrise Communications, which canceled a proposed merger with UPC Switzerland after opposition from Freenet and Active Ownership Capital. It also worked with Vivendi, the French media company that failed to wrestle back control of Telecom Italia from Elliott Management.
Michael Verrechia, Morrow Sodali’s U.S.-based managing director of activism and contested situations, said his team has been working with both new and existing clients on activism preparedness “much earlier in their annual meeting process.” Verrechia believes a prevalent trend this proxy season was opposition to M&A and he expects more such campaigns next year.
MACKENZIE PARTNERS TOTAL CAMPAIGN INVOLVEMENT: 26 KEY CONTACTS: PAUL SCHULMAN, ROBERT MARESE, DAVID WHISSEL
MacKenzie Partners enjoyed a year of diverse projects. Representing 26 campaigns over the last 12 months, MacKenzie advised on M&A campaigns, consent solicitations, board overhauls, and traditional proxy contests.
When asked about the firm’s standout campaign, Executive Vice President David Whissel pointed to Starboard Value’s opposition to Bristol-Myers Squibb’s acquisition of Celgene as the project that “encapsulated one of the major themes of 2019 – M&A activism focusing on breaking up a transaction.”
Whissel expects more M&A activism in 2020, saying it “works in a variety of market conditions,” which is important considering the growing uncertainty of markets. Whissel listed the U.S. presidential election, U.S.-China trade status, and the threat of an economic slowdown as some of the events that could provide platforms for activism. Although confident that activism will remain elevated in 2020, he expects “activity to be driven by occasional and even first-time activists, as more and more actively managed investors view activism as a tool that they can use selectively, rather than a full-time strategy.”
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 14 OKAPI PARTNERS 01. TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 32 SARATOGA PROXY CONSULTING TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 14 =02. INVESTORCOM TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 14 GEORGESON = TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 12 03. D.F. KING TOTAL CAMPAIGNS REPRESENTING ACTIVISTS IN 2019: 12
ACTIVIST ADVISORY THE ACTIVIST INSIGHT 2019 ADVISER AWARDS PROXY FIRMS
ISSUER ADVISORY
INNISFREE 01. TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 30
MACKENZIE PARTNERS 02. TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 23 GEORGESON TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 22 =03. MORROW SODALI TOTAL CAMPAIGNS REPRESENTING ISSUERS IN 2019: 22 NUMBER THE ACTIVIST INSIGHT 2019 ADVISER AWARDS OF TIMES LAW FIRM REPRESENTING ACTIVIST
OLSHAN FROME WOLOSKY 105 SCHULTE ROTH & ZABEL 45 DATA KLEINBERG, KAPLAN, WOLFF & COHEN 12 GLOBAL BREAKDOWN OF LAW FIRM REPRESENTATION OF ACTIVISTS IN 2019 CADWALADER, WICKERSHAM & TAFT 7
WILLKIE FARR & GALLAGHER 7 NUMBER OF TIMES LAW FIRM SIDLEY AUSTIN 6 REPRESENTING ISSUER GOODMANS 5 OTHER* VINSON & ELKINS 38 WHITE & CASE 5 ARNOLD BLOCH LEIBLER SIDLEY AUSTIN 24 HAYNES AND BOONE 4 VINSON & ELKINS HAYNES & BOONE KIRKLAND & ELLIS 14 VINSON & ELKINS 3 WHITE & CASE OLSHAN LATHAM & WATKINS 14 ARNOLD BLOCH LEIBLER 3 GOODMANS 244 FROME ACTIVIST WOLOSKY SKADDEN 13 WILSON SONSINI GOODRICH & ROSATI 2 SIDLEY AUSTIN REPRESENTATIONS WACHTELL LIPTON ROSEN & KATZ 6 DAVIES WARD PHILLIPS & VINEBERG 2 WILLKIE FARR & GALLAGHER GOODWIN PROCTER 6 AKIN GUMP STRAUSS HAUER & FELD 2 CADWALADER, WICKERSHAM & TAFT PAUL, WEISS, RIFKIND, WHARTON & 5 STIKEMAN ELLIOTT 2 SCHULTE GARRISON KLEINBERG, KAPLAN, WOLFF & COHEN ROTH & CADWALADER, WICKERSHAM & TAFT 4 SULLIVAN & CROMWELL 2 ZABEL GOODMANS 4 BRYAN CAVE LEIGHTON PAISNER 2 WILSON SONSINI GOODRICH & ROSATI 4 LOWENSTEIN SANDLER 2 NORTON ROSE FULBRIGHT 4 WACHTELL LIPTON ROSEN & KATZ 1 GLOBAL BREAKDOWN OF LAW FIRM REPRESENTATION OF ISSUERS IN 2019 SIMPSON THACHER & BARTLETT 4 NORTON ROSE FULBRIGHT 1 JONES DAY 4 SIMPSON THACHER & BARTLETT 1 CRAVATH, SWAINE & MOORE 3 BAYARD, P.A. 1 MORGAN, LEWIS & BOCKIUS 3 CLEARY GOTTLIEB STEEN & HAMILTON 1 OTHER** VINSON & WILLKIE FARR & GALLAGHER 2 FASKEN MARTINEAU DUMOULIN 1 JONES DAY ELKINS DAVIES WARD PHILLIPS & VINEBERG 2 FOLEY & LARDNER 1 SIMPSON THACHER & BARTLETT ALSTON & BIRD 2 FRIED FRANK 1 NORTON ROSE FULBRIGHT WILSON SONSINI GOODRICH & ROSATI DENTONS 2 GIBSON DUNN 1 171 ISSUER GOODMANS HOGAN LOVELLS 2 GLASER WEIL FINK HOWARD AVCHEN REPRESENTATIONS & SHAPIRO 1 SIDLEY CADWALADER, WICKERSHAM & TAFT AUSTIN LINKLATERS 2 GREENBERG TRAURIG 1 GROSS, KLEINHENDLER, HODAK, PAUL, WEISS, RIFKIND, WHARTON & GARRISON AKIN GUMP STRAUSS HAUER & FELD 1 HALEVY, GREENBERG, SHENHAV & CO. 1 GOODWIN PROCTER STIKEMAN ELLIOTT 1 JOHNSON FISTEL 1 KIRKLAND & ELLIS LATHAM & SULLIVAN & CROMWELL 1 KANE KESSLER 1 WACHTELL LIPTON ROSEN & KATZ SKADDEN WATKINS BELL NUNNALLY & MARTIN 1 KLUK FARBER LAW 1 DAVIS GRAHAM & STUBBS 1 LEE & KO 1 NELSON MULLINS 1 MAYER BROWN 1 GLOBAL BREAKDOWN OF PROXY FIRM REPRESENTATION OF MELTZER, LIPPE, GOLDSTEIN & ACTIVISTS IN 2019 PEPPER HAMILTON 1 BREITSTONE 1 SEYFARTH SHAW 1 NIXON PEABODY 1 STRADLEY RONON STEVENS & YOUNG 1 PERLEY-ROBERTSON, HILL & MCDOUGALL 1
ROGERS & HARDIN 1
SCHIFF HARDIN 1 OTHER*** OKAPI SEWARD & KISSEL 1 PARTNERS
SHARTSIS FRIESE 1 INNISFREE SMITHAMUNDSEN 1 110 ACTIVIST STROOCK & STROOCK & LAVAN 1 REPRESENTATIONS GEORGESON THOMPSON HINE 1 NUMBER WHITAKER CHALK SWINDLE & 1 INVESTORCOM OF TIMES SCHWARTZ PROXY FIRM REPRESENTING D.F. KING SARATOGA ISSUER PROXY INNISFREE 30 NUMBER CONSULTING OF TIMES PROXY FIRM REPRESENTING MACKENZIE PARTNERS 23 ACTIVIST GEORGESON 22 OKAPI PARTNERS 32 GLOBAL BREAKDOWN OF PROXY FIRM REPRESENTATION OF MORROW SODALI 22 INVESTORCOM 14 ISSUERS IN 2019 OKAPI PARTNERS 21 SARATOGA PROXY CONSULTING 14 KINGSDALE ADVISORS 10 GEORGESON 12 BOUDICCA PROXY 7 D.F. KING & CO 12 BOUDICCA PROXY OTHER**** D.F. KING 7 INNISFREE 6 INNISFREE FIRST ADVISERS 5 D.F. KING MORROW SODALI 4 LAUREL HILL 5 KINGSDALE ADVISORS 4 INVESTORCOM 2 MACKENZIE PARTNERS 3 KINGSDALE ADVISORS 161 MACKENZIE ALLIANCE ADVISORS 2 SHORECREST GROUP 3 ISSUER PARTNERS REPRESENTATIONS SARATOGA PROXY CONSULTING 1 BOUDICCA PROXY 2 OKAPI SHORECREST GROUP 1 FIRST ADVISERS 1 PARTNERS HARKINS KOVLER 1 LAUREL HILL 1 GEORGESON AST PHOENIX ADVISORS 1 MORROW HARKINS KOVLER 1 SODALI BROADRIDGE FINANICAL SOLUTIONS 1 GRYPHON ADVISORS 1
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DOUG BRAUNSTEIN’S HEDGE FUND PROMISED TO BE PART OF A NEW BREED OF ACTIVISTS, ONE THAT SWORE OFF PROXY CONTESTS. CIRCUMSTANCES HAVE SHOWN THAT ISN’T ALWAYS POSSIBLE, WRITES JOSH BLACK.
HUDSON EXECUTIVE CAPITAL Before founding Hudson with Jim Woolery, Doug Braunstein rose from roots at First Boston and Merrill Lynch to become FOUNDED 2015 global head of M&A and industry coverage at JPMorgan,
followed by a three-year stint as the bank’s CFO and HQ LOCATION NEW YORK, NY, U.S. another year as vice chair. Those roles gave him experience not only selling deals to C-suites and boardrooms but of KEY PEOPLE DOUGLAS BRAUNSTEIN managing and reporting investments to the market, several
ACTIVISM FOCUS PRIMARY people who knew Braunstein at the time told Activist Insight Monthly. Braunstein had a “differentiated degree AUM $1.2 BILLION (MARCH 2019) of commercial judgment,” and was “well-received in boardrooms,” one ex-colleague said. “I was blown away by his ability to translate macroeconomic “ USA Technologies (USAT) has seen its fair share of activism, concepts,” adds a friend who invited Braunstein to lecture winning a contest brought by SAVE Partners back in 2012 to a group of M&A lawyers one year. “He was a great banker, and evading calls for a sale from Legion Partners Asset then a great manager of bankers,” a former colleague told Management four years later. But disappointment over Activist Insight Monthly. Friends spoke of his “impeccable promises unfulfilled and the company’s delisting from the moral compass.” Nasdaq stock exchange in September drove Hudson Executive Capital, until now an avowedly constructivist hedge fund run by the former chief financial officer of JPMorgan Chase, to mount a proxy fight for the entire “SOMETIMES THINGS DON’T WORK OUT board. THE WAY YOU HOPE.”
The fight will be a test of Hudson’s tactical nous, as well as its ability to identify a big valuation gap in a company plagued by accounting problems stemming from a 2017 acquisition. Woolery – formerly a Cravath, Swaine & Moore partner, Hudson’s abandonment of a launch-day promise not to run then co-head of JPMorgan’s North America M&A practice, contents was “inevitable,” one senior defense banker told and chairman-elect of Cadwalader, Wickersham & Taft – Activist Insight Monthly. “I don’t think it will help them image- left Hudson in late 2016 for “personal reasons.” Now the wise but you can’t tell your kids to tidy their room without activism defense practice leader at King & Spalding, he told consequences. You get a lot further if you threaten to take “Activist Insight Monthly through a colleague that he was not the PlayStation away.” Hudson declined to comment. available to comment for this article.
IN AND OUT OF BOARDROOMS TRACK RECORD
The fund was launched in 2015 at the zenith of activism’s Since launching Hudson, Braunstein has served on three promise, with new names rapidly joining the likes of Carl boards: Eagle Pharmaceuticals, which gained 33% before Icahn and Nelson Peltz on the front of the business pages. he stepped down last month; Corindus Vascular Robotics, Just weeks earlier, Trian Partners had announced plans for acquired last month for a nearly 300% return based on the a groundshifting proxy contest at DuPont. Hudson, aligned stock price when Hudson disclosed its stake in March 2017; with a council of current and ex-CEOs, promised to be and Cardtronics, where shares have handily outstripped different – using its networks and expertise to guide boards the S&P 500 Index during the 18 months Braunstein has and emphasizing “mutual respect” as its guiding star. been a director. A person familar with the fund told Activist
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“I DON’T THINK IT WILL HELP THEM IMAGE-WISE BUT YOU CAN’T TELL YOUR KIDS TO TIDY THEIR ROOM WITHOUT CONSEQUENCES. YOU GET A LOT FURTHER IF YOU THREATEN TO TAKE THE PLAYSTATION AWAY.” Insight Monthly that Hudson returned an average 15% “ activist he had encountered and found to be “pushy” and before fees since launch and was up 60% for 2019 at the “uninformed as to how true corporate governance worked.” end of November. CORE COMPETENCIES
“THE FUND WAS LAUNCHED IN 2015 AT Although little is known about Hudson’s investment theses THE ZENITH OF ACTIVISM’S PROMISE, – its discussions with management mostly remain private – early ones suggested an interest in M&A. On Hudson’s WITH NEW NAMES RAPIDLY JOINING watch, CIT Group dramatically paired down noncore THE LIKES OF CARL ICAHN AND businesses and returned cash to shareholders, while WhiteWave Foods and HeartWare International were sold. NELSON PELTZ ON THE FRONT OF THE BUSINESS PAGES.” A 2016 investment in Comerica, apparently based on a sale thesis, resulted not in a transaction but in a neat return during Hudson’s investment. An experienced bank Hudson argues that its CEO network – more than 33 people, sector activist told Activist Insight Monthly that Comerica “including its named advisory group – “bring their extensive was “very levered to rising rates.” The timing of Hudson’s knowledge, experience, and networks to facilitate a unique investment was savvy. Another, in Tenet Healthcare, was approach towards idea generation, investment research, less so and made for one of the fund’s few obvious misses. diligence, and execution.” “His approach is to build shareholder value,” says the fellow So far it is Braunstein who has been appointed to portfolio director, adding that Braunstein approaches investments “company boards, however. “His presence has actually like a private equity investor. “It’s a little broader than just upped the dialogue,” said one person who currently serves looking for an M&A catalyst.” alongside Braunstein as a director and asked not to be named when discussing internal board dynamics. The The activist has been most active in U.S. financials and person contrasted Braunstein with another, unnamed, healthcare – two of Braunstein’s early specialties as a
HUDSON’S INVESTMENTS BY SECTOR* FOLLOWER RETURNS BY BOARD REPRESENTATION* TECHNOLOGY (1) REAL ESTATE (1) HEALTHCARE (11) BASIC MATERIALS (1) 34.7% 34.9%
INDUSTRIALS (2)
CONSUMER 23 DEFENSIVE (2) INVESTMENTS
CONSUMER WITH BOARD WITHOUT BOARD CYCLICAL (2) REPRESENTATION REPRESENTATION
*SINCE 2015. FINANCIAL SERVICES (3) *SINCE 2015. SOURCE: ACTIVIST INSIGHT ONLINE AVERAGE ANNUALISED FOLLOWER RETURN FOR INVESTMENTS HELD BY HUDSON EXECUTIVE CAPITAL LP. SOURCE: ACTIVIST INSIGHT ONLINE
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“THE FIGHT WILL BE A TEST OF HUDSON’S TACTICAL NOUS, AS WELL AS ITS ABILITY TO IDENTIFY A BIG VALUATION GAP IN A COMPANY PLAGUED BY ACCOUNTING PROBLEMS.”
banker. Hudson’s biggest bet by dollar amount, a $620 Having done most of the work for its consent solicitation, it million investment in Germany’s flailing Deutsche Bank filed its preliminary proxy statement five months early. through a side vehicle with a long lock-up raised with help from EnTrustPermal, has yet to bear fruit just over a The lengthy delay may make fertile ground for a settlement, year later. Activist Insight Monthly understands Hudson is although USAT has rejected Hudson’s proposal to split the still supportive of management (the bank holds a crucial board between four of its nominees and four incumbents, investor day this month). with a new CEO becoming the ninth member. Instead, USAT has said the company’s priority is regaining its PATIENCE RUNS OUT Nasdaq listing and complained that, of Hudson’s eight nominees, two were invested in the activist’s fund and Whether because USAT perceived a lack of experience three formerly worked at JPMorgan. At the same time, in public hostile activism on Hudson’s part or feared the however, the company has enacted a quick leadership company might be bounced into a sale prematurely, transition. Don Layden, who was only appointed to the it came out swinging when confronted by the activist’s USAT board in April, is now the executive chairman and nominations in October. USAT accused Braunstein of interim CEO. Former boss Stephen Herbert quit soon hiding behind a soundbite to “disguise the true nature after Hudson announced plans to nominate and replace of his tactics,” adding that it was “skeptical of Hudson’s Chairman Albin Moschner in November, after 11 months in track record in ‘assisting’ companies which they have the role and seven years on the board. targeted.” As the street awaits an outcome, Hudson is evidently not Hudson, which has hired Cadwalader and Innisfree M&A, losing sleep over the public nature of its campaign. An is raring for the fight. It began a consent solicitation and investor in the fund told Activist Insight Monthly he was not “sued the company over bylaw amendments that blocked concerned things had changed since 2015. “Sometimes its path to hastening a shareholder vote, settling in court things don’t work out the way you hope,” he said. “This when the company agreed to hold an annual meeting proxy action – I don’t know the details – but it’s absolutely at the end of April 2020 (USAT set the date as April 30). the exception.”
COMERICA DIDN’T SELL UP DURING HUDSON’S INVESTMENT BUT STILL GAINED ON RISING RATES.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 20 ACTIVIST INSIGHT ONLINE LOSING CONTROL
AMBER CAPITAL’S CAMPAIGN AT LAGARDÈRE KICKED OFF WITH A TYPICAL FRIENDLY
ENGAGEMENT AND HIGH HOPES BUT DESCENDED INTO A BRUISING COURT FIGHT, WRITES IURI STRUTA.
LAGARDÈRE
SECTOR: MARKET CAP: EXCHANGE: TICKER: HQ: SERVICES $2.6B (MID CAP) EURONEXT PARIS EPA: MMB PARIS, FRANCE Discussions between Lagardère and Amber Capital had shares and 10% of its voting rights, maintaining Arnaud’s “ been going well until 2018. Amber, which invested in 2016, control of Lagardère through its French limited partnership had been meeting regularly with Lagardère’s divisional structure that has recently been under fire. Although chief executives and was hopeful its suggestions would be shareholders cannot eliminate the structure, they have a implemented. But when Amber decided to nominate two veto over the appointment of the managing partner. candidates for election to the board in April 2018, Lagardère closed its doors to the activist. Indeed, relations have soured so much so that in October 2019 Lagardère sued Amber for “WHEN AMBER DECIDED TO NOMINATE 84 million euros, claiming a “destabilization” campaign by the activist led to a drop in the stock price. TWO CANDIDATES FOR ELECTION TO THE BOARD IN APRIL 2018, LAGARDÈRE Shares in Lagardère have declined 17% since Amber CLOSED ITS DOORS TO THE ACTIVIST.” nominated candidates in May 2018. The now-6% shareholder wanted to improve the company’s board oversight as it pushed its thesis, which revolved around ditching low-return assets, including Lagardère Sports and Another threat for Arnaud is LC&M’s high indebtedness. A Entertainment and part of Lagardère Active, and focusing on report from the Financial Times in August alleged LC&M’s the well-performing travel retail and publishing units. debt was higher than the value of its shares in Lagardère. ““The current issue is that the value of [LC&M’s stake in FEELING THREATENED Lagardère] no longer covers the loans, implying that the family holding company could crash and lead to an ownership Although Amber lost the proxy contest by a wide margin, and management change,” AlphaValue, a pan-European Qatar Investment Authority, the company’s largest independent research firm, said in a report seen by Activist shareholder with near-20% voting rights, reportedly only Insight Monthly. switched its vote from Amber to management at the last minute. Months later in 2018, Lagardère appointed Jamal Amber declined to comment for this article and Lagardère did Benomar, a former United Nations diplomat who the French not reply to multiple requests for comment. media said was close to Qatar Investment, to the board. INTIMIDATING SUIT The contest was a wake-up call for Managing Partner Arnaud Lagardère, who may have realized that control over While lawyers Activist Insight Monthly spoke to said Lagardère’s the media giant founded by his father, Jean-Luc, could slip court action against Amber is unlikely to be successful, the from his grasp without Qatar Investment’s support. The activist believes the suit’s main goal is to intimidate dissenters. family investment vehicle, Lagardère Capital & Management “Lagardère is seeking to discourage any other shareholder (LC&M), owns around 7% of the eponymous company’s who might consider issuing critical analysis on the company’s
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“ALTHOUGH SHAREHOLDERS CANNOT ELIMINATE [LC&M’S] STRUCTURE,
THEY HAVE A VETO OVER THE APPOINTMENT OF THE MANAGING PARTNER.”
management and exercising their shareholder rights, just as Amber described the restructuring as “not optimal,” noting Amber is doing,” the activist said in a press release in October. few asset disposals have been made and the company is still “bearing very large restructuring and asset write-down Lagardère’s suit came around the same time another court “ costs every year.” ordered LC&M to publish its accounts for the past decade or pay fines of 2,000 euros per day to Amber, which had brought Lagardère’s low valuation might also be a function of its an action against the investment vehicle. LC&M has not yet corporate governance. AlphaValue said Lagardère’s legal disclosed its accounts and might appeal the verdict. structure is “highly unfriendly,” while its governance is weaker than expected for the sector. Lagardère described its corporate structure as “modern” and “perfectly in step with “LAGARDÈRE’S LEGAL STRUCTURE corporate governance requirements.” AlphaValue is bullish on the company’s stock, seeing upside of 36% from its IS ‘HIGHLY UNFRIENDLY,’ WHILE ITS current price. GOVERNANCE IS WEAKER THAN EXPECTED FOR THE SECTOR.”
Because of LC&M’s high debt, Arnaud may be incentivized to use Lagardère’s cash for dividends, rather than paying down its own debts. Since 2013, the company has paid the “equivalent of its current market capitalization in regular and “special dividends, while its dividend yield is more than 6%.
SENSE OF URGENCY
Under pressure from a disgruntled shareholder base, Lagardère started to act more urgently, carrying out some of LAGARDÈRE OWNS PUBLISHER HACHETTE. Amber’s suggestions by announcing plans to shift focus to the successful travel retail and publishing divisions. It initiated the process of divesting the underperforming sports division in 2018 but was dealt a blow in November after it lost a contract LAGARDÈRE’S 6-MONTH SHARE with the Confederation of African Football that was supposed PRICE PERFORMANCE to end in 2028. 2000000 25
As Activist Insight Monthly went to press, the company’s supervisory board chair, Xavier de Sarrau, resigned for 1600000 20 personal reasons and was replaced by Patrick Valroff. 08 JUL, 2019 LAGARDÈRE UNVEILS 1200000 STRATEGY CHANGE. 15
10 OCT, 2019 800000 LAGARDÈRE ANNOUNCES 10 ADVISER SPOTLIGHT 84-MILLION-EURO LAWSUIT AGAINST AMBER. Amber Capital is advised by law firm White & Case 400000 5 and proxy solicitor Georgeson. Lagardère is advised by law firm Veil Jourde. The firm’s co-founder is Jean 0 0 Veil, a prominent lawyer in France who is also advising 01 JUNE 2019 01 SEPTEMBER 2019 01 DECEMBER 2019 Casino in its lawsuit against short seller Muddy Waters Research. VOLUME CLOSING SHARE PRICE (EUR)
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WITH ITS PERFORMANCE LAGGING PEERS, KAR AUCTION SERVICES MIGHT SOON FACE ANOTHER ACTIVIST INVESTOR, WRITES ELANA DURÉ.
KAR AUCTION SERVICES
SECTOR: MARKET CAP: EXCHANGE: TICKER: HQ: SERVICES $2.7B (MID CAP) NYSE KAR CARMEL, IN
KAR Auction Services, which rebranded as KAR Global in priorities.” If it fails on that front, KAR could face an activist September, is no stranger to shareholder activism; in 2012 campaign to push for a different turnaround plan. ValueAct Capital Partners urged the vehicle auctioneer to consider a sale. Although the mid-cap firm decided to stay Currently, the firm’s strategy focuses on extending and independent at the time, it’s possible another activist might integrating its platform, improving operating efficiency, and push KAR to consider a deal in the near future. using excess cash to invest in strategic growth initiatives. However, KAR faces a handful of risks, including tough KAR exhibits a host of red flags, including poor profitability competition and substantial debt. In early November, the and a weak balance sheet. Activist Insight Vulnerability company announced disappointing third-quarter earnings, on November 12 ranked the firm in the 95th percentile of reporting adjusted EBITDA of $129 million, below BofA companies most likely to be targeted by an activist investor Merrill Lynch’s estimate of $144 million and the Bloomberg in the next nine months. consensus of $140 million. The company also lowered its expected adjusted EBITDA for 2019 to $510 million-$530 Starboard Value disclosed an investment in KAR in April million from $530 million-$550 million previously, which is “ but exited its stake a few months later when the stock below BofA’s estimate of $531 million and the Bloomberg price briefly improved. “We were honestly surprised consensus of $528 million. when analyzing KAR with how low it was trading given its ownership of two leading businesses,” founder Jeff Smith said at a conference. According to the investor, KAR is behind rival Copart, with underperforming margins and a “WE WERE HONESTLY SURPRISED price-to-EBITDA ratio behind the competitor’s. WHEN ANALYZING KAR WITH HOW LOW IT WAS TRADING GIVEN NEW SPIN ITS OWNERSHIP OF TWO LEADING The Indiana-based company provides live and online BUSINESSES.” used car auction services in North America and the U.K. through its ADESA business. It also offers short-term, inventory-secured financing, known as floorplan financing, to independent used vehicle dealers with its AFC segment. Poor operating performance has caused shareholders to It derives revenue from auction fees at ADESA and dealer “lose faith in KAR, as is evident by the firm’s stagnant share financing fees and interest income at AFC. price over the past year. KAR’s acquisition binge could also create unnecessary risks, as the company acknowledged KAR previously had a third division: IAA, a salvage auction in its annual report. Acquisitions are a significant part of business. However, in February 2018 the company decided KAR’s growth strategy with four since 2017, including to spin off the branch to increase shareholder value and CarsOnTheWeb and TradeRev. allow for “greater flexibility to accelerate its distinct strategic
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“[T]HE COMPANY’S EFFORTS TO CREATE AN INTEGRATED SEAMLESS EXPERIENCE ACROSS ALL CHANNELS SHOULD REMAIN A CORE STRENGTH AS THE INDUSTRY CONTINUES TO EVOLVE.”
However, the strategy might be stretching the company KAR’s self-selected peer Sotheby’s agreed in June to sell too thin. “There is a sense of division amongst the different itself to Patrick Drahi for $3.7 billion, a move Third Point business units, not a collaborate [sic] corporation,” an Partners supported. employee wrote on GlassDoor. “[T]he company’s efforts to create an integrated seamless experience across all GOVERNANCE FLAWS channels should remain a core strength as the industry continues to evolve,” a BofA Merrill Lynch Global Research Shareholders have already expressed some discontent report noted. An activist might urge KAR to narrow its at KAR, with 5.4% of investors voting against the firm’s business focus before purchasing any more companies. compensation plan at the annual meeting in June.
DISCOUNT DEALER The company has no proxy access and lacks independence with James Hallett, who has been on the board for 12 years, An activist might also express concern over the company’s serving as both chairman and CEO. The company might exorbitant spending compared to peers. KAR’s selling, justify his dual role based on his longtime experience in the general, and administrative (SG&A) costs were $497.3 field; Hallett founded two automobile auctions in 1990 and million during the first three quarters of 2019, up from sold his business to ADESA in 1996. He’s been with KAR $460.1 during the same period last year. According to ever since. Nonetheless, it might be time for some fresh Activist Insight Vulnerability, KAR has an SG&A costs to blood at the helm. revenue ratio of 22.2% versus 11.8% for peers. KAR already lists a handful of activists on its register, An activist could urge KAR to pay off debt with the including Greenlight Capital, Engine Capital, and D.E. Shaw “excess cash, given the company already returns capital to Investment Management. The collective activist stake, shareholders through dividends and repurchases. In 2018, which is nearly 7%, could encourage another to launch its KAR returned about $338 million to stockholders. It touts campaign. The nomination window opens February 5 and a dividend yield of 6.6%, ahead of peers’ 1.4%, Activist closes March 6 of next year. Insight Vulnerability data show.
Alternatively, an activist could push KAR to sell the entire firm, similar to ValueAct’s appeal in 2012. Most recently, KAR’S 6-MONTH SHARE PRICE PERFORMANCE KAR’S VULNERABILITIES 40000000 40 IP ET RSH HE E S N E 28 JUN, 2019 C W N KAR COMPLETES O A
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ITY DENCE BIL EN 05 NOV, 2019 A EP IT D KAR RELEASES THIRD F N 10000000 10 O I QUARTER EARNINGS. R N P
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VOLUME CLOSING SHARE PRICE ($)
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WITH 20 PUBLIC SHORT SELLING CAMPAIGNS AND OVER 25 WHISTLEBLOWER REPORTS SUBMITTED IN THE PAST TWO YEARS, HINDENBURG INVESTMENT RESEARCH HIT THE GROUND RUNNING, WRITES ELEANOR O’DONNELL.
With 2019 set to be its best year yet performance-wise, he noted that fraud is not limited to any particular sector New York-based Hindenburg Investment Research has and said he would “look at anything.” been a hit since doors opened in 2017. Nathan Anderson founded the short selling outfit in his bid to expose fraud in The importance Anderson places on morality was echoed the public space and has hired three employees in the past by friend and occasional collaborator Quintessential Capital two years, releasing 21 public reports (of that number 20 Management founder Gabriel Grego. Anderson is “one of were accompanied by a disclosed short position). the top short sellers out there,” Grego told Activist Insight Monthly, adding that Hindenburg’s record is “among the very Speaking to Activist Insight Monthly, Anderson explained best.” The two paired up late last year in a campaign against that Hindenburg has several approaches in its selection Canadian cannabis company Aphria, following a CA$700 process of targets. “My favorite method is to find a million acquisition spree. “He has very high ethical standards thoroughly corrupt individual, preferably a serial fraud artist, and a deep respect for truth and accuracy,” Grego said. then figure out what companies they are associated with and who else they do business with,” he said. “This tends While Anderson finds the work to be tremendously to be a high probability indicator of where there will be satisfying, he does note that is a “pretty insane” business major undisclosed business issues.” to be a part of. “We are basically picking fights with the worst corporate sociopaths we can find,” he told Activist Hindenburg will usually reach out to companies with Insight Monthly. questions before publishing a negative report, Anderson said, although it never receives answers. In one case, SMILING NO MORE at PolarityTe, the company issued a press release after receiving Hindenburg’s email regarding a potential follow- Most recently, Hindenburg placed a bet against
up, stating that regulatory bodies were being notified SmileDirectClub, claiming in an October 4 report that the of suspected significant illegal trading in the company’s teledentistry platform is “carelessly cutting corners” and securities that appeared to be in “strategic coordination putting customers in danger with its at-home, do-it-yourself with the publication of misleading materials.” Anderson model. Although the company has thus far avoided public
noted “another instance [in which] an executive refused to scrutiny, Hindenburg noted that Alabama and Georgia’s answer questions but challenged me to fly down to Boca to dental boards have already enacted rules that render some meet face to face, which I found hilarious.” of SmileDirectClub’s practices illegal, predicting that more states will follow. EXPOSING FRAUD “ The short seller also noted that major organizations like the Anderson said that he prefers to expose fraud in the American Dental Association and the American Association healthcare space because “in addition to the financial of Orthodontists have filed complaints with the Federal Trade harm, it can also cause deadly harm to patients.” However, Commission and Food and Drug Administration and at least 36 state boards. Quintessential praised Hindenburg’s research on Twitter, saying it agrees with the analysis and is “AN EXECUTIVE REFUSED TO also short SmileDirectClub. The company later rejected the allegations, saying that Hindenburg’s claims are groundless ANSWER QUESTIONS BUT and part of a wider campaign to “negatively impact” its CHALLENGED ME TO FLY DOWN “safe and efficient business model.” TO BOCA TO MEET FACE TO FACE, Anderson said he was proud of the SmileDirectClub WHICH I FOUND HILARIOUS.” situation, noting that the stock is down around 39%,
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“WE WERE QUITE PROUD OF THE FACT THAT, DESPITE OPPOSITION FROM THE MOST POWERFUL BANKS IN THE WORLD, OUR RESEARCH STILL CARRIED THE WEIGHT THAT IT DID.”
as of November 14, despite all 10 of SmileDirectClub’s Eventually, however, several executives resigned and were underwriters issuing buy ratings the day after Hindenburg charged with fraud. Riot is now in the midst of an ongoing released its report. “We were quite proud of the fact that, U.S. Securities and Exchange Commission investigation despite opposition from the most powerful banks in the and the stock is down around 90% since the publication of world, our research still carried the weight that it did,” he Hindenburg’s report on December 11, 2017. “Nonetheless,
noted. that initial spike was painful and showed us that timing is just as important as being ‘right’ on substance,” Anderson BLOCKCHAIN BABY noted.
Although Grego could not think of a situation where PUBLIC PONZI SCHEMES Hindenburg should have acted differently, Anderson admitted that timing has been a problem in the past. He Nonetheless, Anderson admitted that Hindenburg has told Activist Insight Monthly that although the short seller been “fortunate to have done very well since inception.” published evidence of “egregious insider self-dealing” at According to Activist Insight Shorts, Hindenburg’s average Riot Blockchain, it made the mistake of doing so when “ campaign return sits at 29.9%, with Yangtze River Port & the blockchain craze was just beginning. “Some of the Logistics giving the short seller its largest return, at 96.8%. comments on the piece were essentially ‘Who cares if it’s a scam? It’s going up. Blockchain baby!’” Anderson revealed. Hindenburg uses its own proprietary capital to fund its Those critics were right at first: the stock doubled. campaigns, some of which never become public. Anderson told Activist Insight Monthly that much of Hindenburg’s work so far has been identifying private market frauds, ““SOME OF THE COMMENTS ON THE such as Ponzi schemes, and then submitting them to PIECE WERE ESSENTIALLY ‘WHO regulators through whistleblower programs. With over 25 whistleblower cases submitted to regulators and its eyes CARES IF IT’S A SCAM? IT’S GOING UP. set on several billion-dollar Ponzi schemes, the short seller BLOCKCHAIN BABY!’” said it “may start publishing on these publicly as well.”
HINDENBURG INVESTMENT RESEARCH’S RECENT ACTIVIST SHORT CAMPAIGNS “80% 60%
40%
20%
0% 01 JANUARY 2019 01 APRIL 2019 01 JULY 2019 01 OCTOBER 2019 -20%
-40%
-60%
-80%
-100%
BLOOM ENERGY DAVITA EROS INTERNATIONAL SMILEDIRECTCLUB PREDICTIVE TECHNOLOGIES SKY SOLAR HOLDINGS
DAY 0 REPRESENTS THE CLOSING SHARE PRICE OF THE STOCK THE DAY PRIOR TO THE ANNOUNCEMENT OF THE ACTIVIST SHORT POSITION. *HINDENBURG’S POSITION IN SKY SOLAR HOLDINGS WAS EXITED ON MARCH 11, 2019, PER A TWEET SENT FROM THEIR TWITTER ACCOUNT.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 26 ACTIVIST INSIGHT SHORTS SHORT NEWS IN BRIEF
A ROUNDUP OF DEVELOPMENTS IN ACTIVIST SHORT SELLING IN NOVEMBER.
MiMedx settled fraud charges with the Securities and statements, and inventing projects to create an illusion of Exchange Commission while the Department of Justice strength in the company. DETAIL indicted former CEO Parker Petit and former Chief Operating Officer William Taylor. The company paid $1.5 million to settle The Friendly Bear claimed that Triple-S Management’s the charges, while the SEC is seeking permanent injunctions, Puerto Rico-based subsidiary, Propiedad, may be the disgorgement and officer-and-director bans for Petit, Taylor catalyst for the entire enterprise crumbling. The short seller and former Chief Financial Officer Michael Senken. DETAIL described Propiedad as “undeniably insolvent” and claimed that Triple-S’ failure to address the subsidiary’s issues in its Elon Musk and Greenlight Capital’s David Einhorn clashed earnings report “constitutes accounting and securities on Twitter after Musk claimed the short seller’s third quarter fraud.” The Friendly Bear added that a credit rating evaluation report aimed several false allegations at Tesla. In a letter valued Triple-S nearly 60% below its audited book value, and addressed to “Mr. Unicorn,” Musk took several swipes at said this means the company should be trading in the region Einhorn’s continued losses in Tesla and invited the Greenlight of 58% below its price in mid-November. DETAIL founder to tour Tesla’s facilities to understand how the business works. Einhorn agreed to the visit, adding that he Muddy Waters Research claimed that Japan’s PeptiDream is “might learn the difference between your alien dreadnought set to fall short of investor expectations thanks to “systemic factory and cars made by hand in a tent.” DETAIL limitations” embedded in the company. The short seller questioned PeptiDream’s ability to produce significant Gotham City Research updated investors on its short revenue, suggesting that the company will only release one position at Medifast and claimed the company may face drug by 2027. Muddy Waters also slammed PeptiDream’s further downside risks. The short seller theorized that the partnerships, saying more than half of its 19 partnerships are nutrition and weight loss company, which Gotham accused “effectively dormant or dead.” The short seller argued that of credit card fraud and “quality control” problems in a PeptiDream’s senior management is aware of the issues September 2018 report, would see its share price fall to surrounding the company and are taking steps to minimize somewhere between $30-$58 following its failed earnings the recoil it has on them. DETAIL target and cut guidance, which prompted shares to drop as much as 29% in early November. DETAIL The Capitolist revealed a bet against Health Insurance Innovators (HII) in mid-November, as the company dealt with Krupa Global Investments called the accounting malpractice the fallout of fraud allegations by various short sellers. The allegations levied at Wirecard “clearly false” and suggested Capitolist claimed that HII would have difficulty finding a that reports carried out by the Financial Times were “paid for suitor amid a strategic review because it has a debt-to- by short sellers who benefited from steep declines in stock equity ratio that “ballooned” to $160 million of debt versus prices.” The investor revealed a 5 million-euro stake in $9 million of cash. DETAIL November, saying that it had met with Wirecard’s management and has “full confidence” in the integrity of the Spruce Point Capital Management accused Cintas of fraud company’s finances. DETAIL and claimed that the company’s growth this year has been invented. The short seller argued that the company’s 2017 Hong Kong leather manufacturer Kasen International acquisition of G&K Services had not panned out as hoped, Holdings lost 90% of value after Blue Orca Capital placed a and that the overvaluation that Cintas paid led the company bet against the company. The short seller claimed that the to suppressing G&K sales prior to the acquisition and firm’s accounting issues made Kasen “uninvestable” and publishing them at a later date in an attempt to create a would see the company lose a minimum 85%. Kasen said “weak ‘beat and raise’ story to consolidate share and extract Blue Orca’s report makes “untrue and misleading” synergies.” DETAIL accusations, including the company divesting parts of the business to the chairman’s daughters, fabricating financial
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 27 ACTIVIST INSIGHT SHORTS NEW SHORT INVESTMENTS
A SELECTION OF THE LATEST ACTIVIST SHORT INVESTMENTS FROM AROUND THE WORLD IN NOVEMBER.
DETAIL CLICK ON THE DETAIL BUTTON TO VIEW FURTHER INFORMATION ON THIS CAMPAIGN ON ACTIVIST INSIGHT SHORTS.
ACTIVIST COMPANY HQ DATE ANNOUNCED DETAIL
KASEN INTERNATIONAL BLUE ORCA CAPITAL NOVEMBER 21, 2019 DETAIL HOLDINGS Kasen stock lost 90% in value after Blue Orca alleged that the automotive leather and furniture manufacturer is “uninvestable” due to serious accounting issues that, once recognized by markets, are poised to take the stock down at least 85%.
MARCUS AURELIUS VALUE PAYSIGN NOVEMBER 21, 2019 DETAIL
The short seller said it is skeptical of Paysign’s positive “narrative” surrounding the planned rollout of its new general-purpose reloadable card because the firm is in a highly competitive landscape and faces regulatory risk.
WHITE DIAMOND RESEARCH ENOCHIAN BIOSCIENCES NOVEMBER 19, 2019 DETAIL
Shares in Enochian fell as much as 14% after the activist said the pharmaceutical company’s chief scientist “considers himself a mystic, performs magic tricks, and was accused of identity theft, grand theft, false impersonation and plead guilty to commercial burglary in Los Angeles.” HEALTH INSURANCE THE CAPITOLIST NOVEMBER 15, 2019 DETAIL INNOVATIONS The Capitolist noted that HII’s chief financial officer has departed from the company in the middle of its strategic review, questioning the likelihood of the firm finding a buyer.
BODENHOLM CAPITAL AB KOENIG & BAUER AG NOVEMBER 14, 2019 DETAIL
At the Sohn Foundation’s London conference, Bodenholm said the German printing press manufacturer is making money mostly by selling banknote printing presses while banknote printing is in decline, which will cause cash flow issues. LOMBARD ODIER AIR PRODUCTS AND NOVEMBER 14, 2019 DETAIL INVESTMENT MANAGERS CHEMICALS The Sohn conference also saw Lombard claim that Air Products’ gasification business runs a host of risks, including country, customer, and joint venture risks, and environmental risks. MAKURIA INVESTMENT ICA GRUPPEN NOVEMBER 14, 2019 DETAIL MANAGEMENT Also at the Sohn conference, Makuria listed a host of factors that could lead to a swift deterioration of the Swedish grocer’s stock price, including weak return on capital and severe pressure on EBIT margins from increased competition.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 28 ACTIVIST INSIGHT SHORTS
PLAINVIEW DOESN’T BELIEVE FIBROGEN’S DRUGS WILL PASS THE TEST.
ACTIVIST COMPANY HQ DATE ANNOUNCED DETAIL
SPRUCE POINT CAPITAL CINTAS NOVEMBER 13, 2019 DETAIL MANAGEMENT
Cintas’ shares fell as much as 4% after Spruce Point published a report accusing the company’s fire protection services business of committing fraud. The short seller also said the company manipulated funds to present an illusion of growth following its 2019 acquisition of G&K Services.
VALIANT VARRIORS HLB NOVEMBER 12, 2019 DETAIL
The short seller called out Hyundai Lifeboat, claiming that the company’s cancer medication, Rivoceranib, will prove far less popular than first thought.
MUDDY WATERS RESEARCH PEPTIDREAM NOVEMBER 07, 2019 DETAIL
Muddy Waters placed a short bet against Japan’s PeptiDream, alleging that the peptide drug developer will likely fail to meet investor expectations due to “systemic limitations” in advancing its drug candidates.
PLAINVIEW FIBROGEN NOVEMBER 04, 2019 DETAIL
FibroGen’s share price dropped as much as 10% after short seller Plainview published a report suggesting that two drugs being developed by the pharmaceutical company are likely to fail safety trials.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 29 ESG CORNER BENIGN ACTS
NEW LEGISLATION AIMS TO SOLIDIFY ONGOING TRENDS IN CANADIAN CORPORATE GOVERNANCE, WRITES FRANCESCA BATTAGLIA.
In March this year, the Canadian federal government Yet despite the absence of any regulation, many Canadian announced several reforms to the Canada Business public companies already hold such votes. Davies reported Corporations Act (CBCA), effective January 1, 2020. The that in 2019, 83% of companies on the TSX 60 and 52%
amendments include a mandatory annual non-binding “say of all Composite Index and SmallCap Index issuers held on pay” vote for shareholders and diversity-related changes “say on pay” votes. According to Davies, it is likely that for a group of public companies still to be defined. Imperial Oil will have to implement such votes even though the proposal was rejected, while Linamar would not have The amendments codify key elements of the Supreme to adopt it as it is an Ontario corporation and not a CBCA Court of Canada’s seminal 2009 decision in BCE v 1976 “ company. Debentureholders regarding directors’ and officers’ duties to act in the best interests of the corporation, law firm Even so, for shareholders, a “say on pay” vote represents Davies Ward Phillips & Vineberg wrote in a paper published “a valuable way to communicate dissatisfaction with the on October 3. performance without taking the directors down,” and drives engagement, Olasker said. Kingsdale Advisors’ Proxy Season Review noted that some companies that received “IT STILL SURPRISES ME THAT THERE HAS low support in “say on pay” votes in 2018 have seen an increase in support levels this year because of “director- BEEN LITTLE CHANGE IN CORPORATE led engagement with shareholders…and active adoption CANADA IN TERMS OF ADDING MORE of, and commitment to, executive compensation best practices.” WOMEN TO TSX LISTED BOARDS.” DIVERSE, AND THEN SOME
Yet not everyone is fully convinced by the reforms. “It is The CBCA amendments also require public companies to unclear why these amendments were considered necessary disclose information regarding diversity among directors or whether their implementation will result in any change and management teams. This year, 92% of the TSX “in the behavior of boards of CBCA corporations,” Davies constituents had at least two women on their boards, stated in the paper. Patricia Olasker, a partner at the firm Kingsdale reported. Yet the new law applies to all groups, specializing in shareholder activism and M&A, argues that including female, aboriginal, and disabled people, as well as “the government wanted to put its stake on the ground to other minorities. “I suspect this is unusual and that Canada signal its commitment” to issues like diversity, rather than may be on the forefront here,” Olasker commented. because legislation was necessary. “It still surprises me that there has been little change in ‘SAY ON PAY’ Corporate Canada in terms of adding more women to TSX listed boards,” Deborah Rosati, CEO and founder of Until the new law comes into effect, there is no legal Women Get On Board, wrote on her blog approximately requirement in Canada for a vote on remuneration a month before the government announced the reforms. policy, unlike in the U.S. or the U.K. Indeed, the boards Board-diversity “requires business leaders to step up to of some companies, including Imperial Oil and Linamar, recognize the positive impacts of and the necessity of recommended their shareholders vote against regular “say developing a culture of diversity in the boardroom, which on pay” votes at annual meetings this year. In response to many have been slow to do,” Rosati noted. a shareholder proposal, Linamar said “say on pay” was a form of communication “both administratively burdensome “People would like for this process to be accelerated, but and not issue specific.” there is no question that we are moving towards more gender diverse boards,” Olasker said.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 30 UPCOMING EVENTS
ACTIVIST INSIGHT MONTHLY HIGHLIGHTS WHAT TO WATCH OUT FOR IN THE COMING MONTHS.
DATE COMPANY EVENT TYPE
9 DECEMBER FRANCESCA’S HOLDINGS EARNINGS RELEASE
Will the company reverse the sales decline it experienced over the last two years?
11 DECEMBER FRED’S, INC. EARNINGS RELEASE
The company will release its financial results nearly three months after tumbling into bankruptcy.
11 DECEMBER STAR NAVIGATION EGM
A group of dissident investors has called a shareholder meeting to replace the board of the Canadian company with its seven-person slate.
17 DECEMBER HUDSON’S BAY EGM
Shareholders will vote on the take-private offer advanced by a group led by Executive Chairman Richard Baker.
18 DECEMBER APOGEE ENTERPRISES EARNINGS RELEASE
The company recently renewed a cooperation agreement with activist investor Engaged Capital.
19 DECEMBER WHEELER REAL ESTATE INVESTMENT TRUST AGM
Will shareholders vote in favor of the three nominees advanced by activist investor Stilwell Value?
7 JANUARY BED BATH & BEYOND EARNINGS RELEASE
A chance for Bed Bath & Beyond to update shareholders eight months after it settled with a group of activists. SKYTOP STRATEGIES: SHAREHOLDER ACTIVISM & EN- 23 JANUARY CONFERENCE GAGEMENT GERMANY Skytop will host a program addressing the need for new rules of engagement in Germany as shareholder activism increases.
23 JANUARY AIR PRODUCTS AND CHEMICALS EARNINGS RELEASE
The company will release its fourth-quarter results around two months after short seller Lombard Odier bet against the company.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 31
ACTIVIST INSIGHT ONLINE NEWS IN BRIEF
A ROUNDUP OF DEVELOPMENTS IN ACTIVIST INVESTING IN NOVEMBER.
NORTH AMERICA & Co. Now Carrizo shareholders will receive 1.75 Callon shares in exchange for their Carrizo stock, down from the Hudson Executive Capital proposed a full board slate at original 2.05 shares. Given the short notice of the USA Technologies (USAT), which the cashless payment amendments, the revised deal gained the support of both firm rebuffed. After Hudson sought a shareholder vote Paulson and Institutional Shareholder Services ahead of a through a special meeting, USAT changed its bylaws. In the revised December 20 meeting date. DETAIL ensuing litigation, the parties agreed that USAT would call an annual meeting by the end of April. USAT set the vote for The U.S. Securities and Exchange Commission (SEC) April 30. DETAIL proposed several regulations that would endow companies with new tools to fight shareholder proposals. The Veteran investor Carl Icahn hopes a merger between Xerox regulations would increase the time and value threshold and HP is still on the cards after the 10.6% Xerox placed on investors before they can introduce proposals. stakeholder disclosed a new 4.2% position in HP. The Proxy advisers like Glass Lewis and Institutional Shareholder computer maker had rejected Xerox’s $33 billion bid in mid- Services will also be required to hand over voting November, calling it a “highly conditional” offer with an recommendations to management twice before publication “uncertain nature.” Nonetheless, HP said it is willing to under new rules, each time receiving feedback. DETAIL engage with Xerox concerning a possible deal. DETAIL Trian Partners’ director re-election at Sysco was met with Carl Icahn claimed Occidental Petroleum had become a dissent from shareholders in mid-November. Both Nelson “very risky investment” and dropped his stake in the energy Peltz and Joshua Frank retained their board seats, but company from 3.7% to 2.4%. Despite the decrease, Icahn Peltz received just under 92% approval of the votes cast, plans to replace to entire board and push for an outright the highest dissent among the 13-member slate. Trian also sale of the company or the replacement of CEO Vicki lost its push for an independent director to join the board Hollub. Events reached a head after Icahn’s request for after the proposal was voted down by shareholders. Occidental’s financial records was denied. A judge said DETAIL Icahn’s accusations of malpractice amounted to “disagreements with how Occidental’s directors exercised Wheeler Real Estate Investment Trust called Stilwell Value’s their business judgments.” DETAIL founder, Joseph Stilwell, a “cult member” amidst the investor’s push for three board seats. The REIT lashed out Online marketplace eBay sold StubHub to ticket seller after Stilwell lambasted the company for allegedly viagogo in a deal valued at more than $4 billion, months backtracking on a verbal agreement to settle a proxy after settling with activist investors Elliott Management and contest for three board seats and withholding financial Starboard Value. DETAIL / DETAIL information. Wheeler denounced the allegations and shared the “disturbing and salacious” information of Stilwell’s Korean activist Alpha Holdings sued OncoSec Medical and membership of a “cult” group, which allegedly physically China Grand Pharmaceutical as it looks to break up a and psychologically abuses its members. Stilwell refused to takeover announced in October. Alpha claimed that comment, citing a family illness. DETAIL OncoSec’s directors made “incomplete and misleading disclosures” concerning the received proposal, adding that Aecom announced the appointment of three new the Chinese investment holdings company “aided and independent directors recommended by Starboard as part abetted these breeches.” DETAIL of a governance agreement with the investor. DETAIL
Callon Petroleum and Carrizo Oil & Gas changed the terms of their merger just hours before Callon shareholders were set to vote on the deal, following opposition from Paulson
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 33 EUROPE by the Qatari royal family, Deutsche’s largest shareholder with 10%. DETAIL Bluebell Partners founded a new activist investment firm called Bluebell Active Equity Fund, which will primarily The Advent International acquisition of U.K.-based Cobham target opportunities in Europe. Bluebell Active launched appears set to advance in December after British Business with 50 million euros of dry powder and will focus on Secretary Andrea Leadsom said she was “minded to investments in companies valued between 2 billion and 15 accept” Advent’s terms for national security in order to billion euros. Bluebell previously advised Jana Partners at complete the deal. The private equity firm agreed to various Tiffany & Co. and Elliott Management during campaigns in requirements, including a series of British directors on the Italy. DETAIL Cobham board and notifying the Ministry of Defence regarding a sale of Cobham or any of its operations. Energy company Fortum was given a green light to complete Leadsom said no official decision would be made until the its purchase of Uniper shares from Elliott Management and consultation period was completed on December 17. Knight Vinke Asset Management. The $2.5 billion deal will DETAIL increase the state-owned Finnish company’s stake in Uniper to 70%. Russian legislation prohibits state-owned Plutus PowerGen invalidated a requisition notice from 5% companies form acquiring assets deemed strategic, such shareholder Jarvis Investment Management on a as the water license Russia has with Uniper’s Russian technicality. The investor sought to replace the current subsidiary Unipro, but Igor Artemyev, head of Russia’s anti- board with three of its own candidates. While Plutus monopoly service, said amendments would be made to managed to delay Jarvis’ requisition, it has said that it facilitate the deal. DETAIL expects a fresh demand in the near future. DETAIL
Prosus advanced an official offer for Just Eat with a FirstGroup’s largest individual shareholder, Robert December 11 deadline for shareholders to tender their Tchenguiz, echoed fellow activist Coast Capital in calls for stock. The offer would pay 7.10 pounds for each share, the company to clarify its strategy and consider a possible though Just Eat advised shareholders to reject the offer, sale of its U.S. business. Tchenguiz claimed FirstGroup’s favoring the Takeaway.com stock deal as a more logical chairman, David Martin, “refused to clarify his position” on choice that offers “compelling strategic rationale.” DETAIL the company’s strategic plan, forcing the shareholder to go public. Coast previously asked for a similar clarification and Oaktree Capital, Rubric Capital Management, and Kite Lake called on the company to divest its U.S.-based bus and Capital Management advised U.K.-based Inmarsat to delay transport business. DETAIL its acquisition hearing until it has fully detailed the value of its spectrum assets, specifically 5G network Ligado. Inmarsat is the target of a consortium made up of Canadian pension plans along with private equity firms Apex and Warburg. Oaktree claimed Ligado could see hefty returns if a U.S. lease is completed. Inmarsat insisted that there had been “no material change” in the U.S. leasing process of Ligado, though it delayed the takeover hearing until November 27 and 28. DETAIL / DETAIL / DETAIL
Romanian nuclear power producer Nuclearelectrica rebuffed a request from 7.5% shareholder Fondul Proprietatea to issue dividends. The company said that the 500 million leu in dividends would scupper its plans to further invest in its plant. Nuclearelectrica’s largest shareholder is the Romanian Economy Ministry, and likely refused the request having been ordered to avoid spending where possible as the country’s newly installed government is more cash-strapped than previously expected. DETAIL
Cerberus Capital Management is attempting to oust Deutsche Bank Chairman Paul Achleitner. The move comes after the private equity firm said it lost faith in Achleitner’s ability to lead following several years of restructuring and the chairman’s decision to withdraw from a Commerzbank ROBERT TCHENGUIZ JOINED COAST CAPITAL’S CALLS merger. The investor’s dissatisfaction is reportedly shared FOR CHANGE AT FIRSTGROUP.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 34 REST OF THE WORLD $1.1 billion paid for a 33% stake in health supplement company Fancl has seen Kirin’s value drop well below its RMB Capital is opposing the acquisition of Sotsu by video competitors that focus on their core business strategies. game publisher and developer Bandai Namco. RMB said in DETAIL early November that the 3,100 yen per share offer, which Sotsu had advised shareholders to accept, was below the ESR-Cayman, the sponsor of Sabana Shari’ah Compliant true valuation of the company. The investor suggested that REIT and ESR-REIT, batted away governance concerns an offer of 4,600 yen per share was a fairer valuation based raised by Quarz Capital Management. The investor said in on a “reasonable financial projection and fair discounted mid-November that Sabana and its competitor ESR should cash flow assumptions.” DETAIL merge to avoid conflicts of interest, adding that Sabana’s share price trades at a “sharp” discount because it Japanese conglomerate Toshiba proposed tender offers for competes with ESR for limited assets. ESR-Cayman three of its subsidiaries as it seeks to alleviate pressure attempted to ease the concerns, saying that it employs from several investors to streamline its conglomerate “strict internal controls” to regulate conflicts of interest. structure. The company proposed spending 1.8 billion yen DETAIL to buy back controlling stakes in its plant engineering firm, marine electrical systems manufacturer, and food BHP Billiton announced that Mike Henry will replace processing equipment manufacturer. If Toshiba can Andrew Mackenzie as CEO. Mackenzie, whose seven-year complete the buybacks, activists hope it will instigate a tenure covered a business overhaul, cost-cutting measures, fresh repurchase program from the conglomerate. DETAIL and spinoffs, will step down on January 1. Henry, who has overseen BHP’s Australian operations since 2016, will aim Asset Value is considering a fresh proposal at Tokyo to improve orders from China, BHP’s largest client, following Broadcasting System Holdings after two unsuccessful a slowdown in recent times. The incoming CEO must also proposals in 2018. CEO Joe Bauernfreund said that both address pressure from Aberdeen Standard Investments TBS and textile manufacturer Teikoku Sen-I, which the and several pension funds for the company to cut ties with investor disclosed a 5% stake in last month, could double coal lobbyists. DETAIL their share prices if steps were taken to shed strategic holdings. DETAIL
Korea Corporate Governance Improvements (KCGI) targeted Hanjin Kal’s board composition, saying it is looking to “strengthen management efficiency and transparency” by gaining representation on the governance board committee of the Korean Airlines parent company. Hanjin announced the new committee in early November in an effort to placate KGCI’s calls for management checks. If KGCI wins a seat, it would likely have greater leverage to push Hanjin to shed non-core business efforts in an attempt to reduce its dizzying 922% debt-to-equity-level. DETAIL
Keybridge Capital asked board members William Johnson and Simon Cato, both of whom were nominated by activist Bentley Capital, to step down from their positions. The move comes after shareholders failed to remove the duo at an October meeting due to a technicality. Keybridge said it wanted to “give effect to the clear wishes of the majority of shareholders who wished to vote” at the company’s special meeting. The decision comes as Bentley fights with Australian Style Group, an investor controlled by Keybridge CEO Nicholas Bolton, for dominance of the board. DETAIL
U.K.-based activist Independent Franchise Partners has advised Japanese conglomerate Kirin Group Holdings to focus on its core brewery business rather than the “value destroying” acquisitions of non-core assets. The 2% investor warned that the $1.2 billion paid for a 95% stake in BHP NAMED ITS NEW CEO LAST MONTH. biochemicals company Kyowa Hakko Bio and a further
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 35 ACTIVIST INSIGHT ONLINE NEW INVESTMENTS
A SELECTION OF THE LATEST ACTIVIST INVESTMENTS FROM AROUND THE WORLD IN NOVEMBER.
DETAIL CLICK ON THE DETAIL BUTTON TO VIEW FURTHER INFORMATION ABOUT THIS INVESTMENT ON ACTIVIST INSIGHT ONLINE.
ACTIVIST COMPANY HQ DATE NOTIFIED STAKE
SABA CAPITAL MANAGEMENT DTF TAX-FREE INCOME NOVEMBER 20, 2019 DETAIL
The activist said it “may make binding or non-binding shareholder proposals, or may nominate one or more individuals as nominees for election to the board.”
BRASIDAS INVESTMENT MANAGEMENT UNIVERSAL COAL NOVEMBER 20, 2019 DETAIL
Brasidas sent an invalid requisition notice to the company, seeking the appointment of two nominees and the removal of Chairman John Hopkins. The company invited the activist to resubmit its request.
OASIS MANAGEMENT COMPANY SHIMACHU NOVEMBER 19, 2019 DETAIL
Oasis announced it may submit important proposals to Shimachu in order to protect shareholder value.
CAI JIN LINK-ASIA INTERNATIONAL NOVEMBER 19, 2019 DETAIL
The shareholder requisitioned a special meeting in an attempt to remove two directors from the Hong Kong-based electronics manufactur- er’s board. CHRISTOPHER REGO AND ROD CREATIVE LEARNING NOVEMBER 19, 2019 DETAIL WHITON Christopher Rego and former Creative Learning top executive Rod Whiton launched a consent solicitation at the online education company, pursuing a complete board refreshment.
STARBOARD VALUE ACACIA RESEARCH NOVEMBER 18, 2019 DETAIL
Starboard struck a deal with Acacia, which is being relaunched by two investors who won control of the board last year. The activist appointed its managing partner, Jonathan Sagal, to the board and contributed to $500 million raised in preferred stock and notes sales.
ASSET VALUE INVESTORS TEIKOKU SEN-I CO NOVEMBER 15, 2019 DETAIL
The activist’s CEO, Joe Bauernfreund, said he is prepared to put forward proposals at the company, including reducing its stakes in other companies and introducing a share buyback program. SABANA SHARI’AH QUARZ CAPITAL MANAGEMENT NOVEMBER 14, 2019 DETAIL COMPLIANT REIT Quarz urged Sabana to merge with ESR-REIT to avoid corporate governance issues regarding the common shares they both hold in ESR-Cayman.
JARVIS INVESTMENT MANAGEMENT PLUTUS POWERGEN NOVEMBER 13, 2019 DETAIL
Plutus said it had received an invalid requisition notice from Jarvis to call a meeting for shareholders to vote on replacing the incumbent board with its own representatives, but expects to receive a legitimate one in due course.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 36 OAKTREE CAPITAL MANAGEMENT DROPPED OPPOSITION TO INMARSAT’S SALE IN THE FACE OF REGULATORY UNCERTAINTY.
ACTIVIST COMPANY HQ DATE NOTIFIED STAKE
GREGORY FORTUNOFF FAT BRANDS NOVEMBER 12, 2019 DETAIL
Fortunoff revealed his intention to push the restaurant group to refinance its debt, seek value-enhancing deals, and pursue a merger with a management-owned company for tax-related purposes.
H. COYNE & SONS COPPER NORTH MINING NOVEMBER 12, 2019 DETAIL
H. Coyne requisitioned a shareholder meeting at Copper North, at which shareholders will vote on whether to remove all but two of the company’s six incumbent directors.
JOHNNY GUERRY FIRST UNITED NOVEMBER 08, 2019 DETAIL
The ex-Blue Lion Capital managing partner joined Driver Management and Rangeley Capital in their calls for the company to pursue a sale.
INDEPENDENT FRANCHISE PARTNERS KIRIN GROUP HOLDINGS NOVEMBER 07, 2019 DETAIL
The U.K.-based activist told the Japanese conglomerate to rethink its strategy or risk continuing in a fashion that “destroys value” in the company.
OASIS MANAGEMENT COMPANY SEVEN & I HOLDINGS NOVEMBER 06, 2019 DETAIL
The Hong Kong-based activist reportedly began pushing the convenience store owner to spin off its non-core businesses and improve corporate governance.
GLEN CAPITAL PARTNERS RTI SURGICAL HOLDINGS NOVEMBER 06, 2019 DETAIL
The sometime activist converted its passive stake to active after it met with management and said it expected to maintain a dialogue with executives regarding strategic direction, capital structure, and corporate governance.
OAKTREE CAPITAL MANAGEMENT INMARSAT NOVEMBER 05, 2019 DETAIL
Oaktree advised Inmarsat to stall its court sanction hearing concerning the sale of its Ligado asset, to allow time to inform all shareholders on the future of the business. Although the meeting was delayed, Oaktree subsequently withdrew its opposition.
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 37 ACTIVIST INSIGHT ONLINE MOST READ
VIEW THE MOST-READ NEWS STORIES FROM ACTIVIST INSIGHT ONLINE OVER THE LAST MONTH.
SEC INTRODUCES LIVE: SOHN ANTI-SHAREHOLDER CONFERENCE MEASURES LONDON
TUESDAY, NOVEMBER 05, 2019 THURSDAY, NOVEMBER 14, 2019
VALARIS JUMPS STARBOARD INVESTS AFTER LUMINUS IN NEW ACTIVIST RAMPS UP PRESSURE
MONDAY, NOVEMBER 18, 2019 MONDAY, NOVEMBER 25, 2019
ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 38 ACTIVIST INSIGHT ONLINE MONTHLY SUMMARY
ACTIVIST TARGETS BY GEOGRAPHY ACTIVIST TARGETS BY SECTOR
2019 2018 YOY % 2019 2018 YOY pp COMPANY HQ LOCATION NOV 2019 YTD YTD CHANGE SECTOR NOV 2019 YTD YTD CHANGE
U.S. 27 453 470 3.6% BASIC MATERIALS 12.3% 11.0% 9.3% 1.7pp
CANADA 3 47 72 34.7% COMMUNICATION SERVICES 5.3% 4.0% 3.2% 0.7pp
U.K. 8 54 49 10.2% CONSUMER CYCLICAL 12.3% 16.1% 16.1% 0.0pp
AUSTRALIA 4 70 71 1.4% CONSUMER DEFENSIVE 8.8% 5.9% 5.2% 0.7pp
EUROPE (EXCLUDING U.K.) 3 77 104 26.0% ENERGY 7.0% 4.6% 6.1% 1.5pp
ASIA 12 101 113 10.6% FINANCIAL SERVICES 7.0% 11.9% 11.5% 0.4pp
OTHER 0 6 20 70.0% FUNDS 8.8% 5.0% 3.0% 1.9pp
TOTAL 57 808 899 10.1% HEALTHCARE 5.3% 10.0% 10.2% 0.2pp
NUMBER OF COMPANIES PUBLICLY SUBJECTED TO ACTIVIST DEMANDS BY COMPANY HQ LOCATION. INDUSTRIALS 12.3% 13.7% 15.9% 2.2pp
REAL ESTATE 5.3% 3.2% 4.9% 1.7pp
TECHNOLOGY 14.0% 11.8% 11.3% 0.4pp
ACTIVIST TARGETS BY MARKET CAPITALIZATION UTILITIES 1.8% 2.8% 3.1% 0.3pp
PROPORTION OF COMPANIES PUBLICLY SUBJECTED TO ACTIVIST DEMANDS BY SECTOR. 2019 2018 YOY pp MARKET CAPITALIZATION NOV 2019 YTD YTD CHANGE ACTIVIST DEMANDS BY TYPE NANO CAP (<$50M) 23.1% 21.4% 22.2% 0.8pp
MICRO CAP ($50M - $250M) 21.2% 16.4% 15.8% 0.6pp 2019 2018 YOY pp DEMAND TYPE NOV 2019 YTD YTD CHANGE SMALL CAP ($250M - $2B) 30.8% 25.4% 25.4% 0.0pp BOARD-RELATED 55.6% 49.2% 43.8% 5.4pp MID CAP ($2B - $10B) 15.4% 15.7% 14.9% 0.8pp BALANCE SHEET 13.3% 10.3% 11.6% 1.3pp LARGE CAP (>$10B) 9.6% 21.0% 21.7% 0.7pp BUSINESS STRATEGY 5.6% 4.0% 6.7% 2.7pp PROPORTION OF COMPANIES PUBLICLY SUBJECTED TO ACTIVIST DEMANDS BY MARKET CAPITALIZATION. M&A & BREAKUP 17.8% 13.3% 13.0% 0.3pp
REMUNERATION 2.2% 4.9% 4.3% 0.6pp
OTHER GOVERNANCE 5.6% 17.4% 19.2% 1.8pp
OTHER 0.0% 0.9% 1.3% 0.4pp SUCCESS RATES OF RESOLVED DEMANDS PROPORTION OF PUBLIC ACTIVIST DEMANDS BY DEMAND TYPE.
2019 2018 YOY pp OUTCOME NOV 2019 YTD YTD CHANGE ACTIVIST AT LEAST PARTIALLY ACTIVIST BOARD SEATS GAINED BY GEOGRAPHY SUCCESSFUL 63.4% 38.8% 42.5% 3.7%
ACTIVIST UNSUCCESSFUL 31.7% 50.9% 45.3% 5.7% 2019 2018 YOY % COMPANY HQ LOCATION NOV 2019 YTD YTD CHANGE WITHDRAWN DEMANDS 4.9% 10.3% 12.2% 2.0% U.S. 19 214 265 19.2%
OUTCOMES OF RESOLVED ACTIVIST DEMANDS. CANADA 5 38 47 19.1%
U.K. 1 27 24 12.5% NUMBER OF ACTIVE ACTIVISTS AUSTRALIA 3 42 44 4.5% EUROPE (EXCLUDING U.K.) 0 32 88 63.6% 2019 2018 YOY pp NOV 2019 YTD YTD CHANGE ASIA 0 66 68 2.9%
ACTIVE ACTIVISTS 65 704 821 14.3% OTHER 0 2 16 87.5% TOTAL 28 421 552 23.7% NUMBER OF INVESTORS MAKING A PUBLIC DEMAND OF A COMPANY.
NUMBER OF BOARD SEATS GAINED BY ACTIVISTS BY COMPANY HQ LOCATION.
N.B. 1. ALL DATA EXCLUDE ACTIVIST SHORT POSITIONS. N.B. 2. ALL PERCENTAGES ARE GIVEN TO ONE DECIMAL PLACE, AND MAY CAUSE ROUNDING ERRORS. N.B. 3. YTD FIGURES ARE AS OF THE END OF NOVEMBER OF THE GIVEN YEAR, UNLESS OTHERWISE SPECIFIED. N.B. 4. MARKET CAPITALIZATION FIGURES ARE AS OF NOVEMBER 30, 2019.
SOURCE: ACTIVIST INSIGHT ONLINE ACTIVIST INSIGHT MONTHLY DECEMBER 2019 | WWW.ACTIVISTINSIGHT.COM 39