Social Media in Activism Tci at Japan Tobacco Kerrisdale Capital Tulchan

Volume 3, Issue 7 July 2014

SOCIAL MEDIA IN ACTIVISM TCI AT JAPAN TOBACCO KERRISDALE CAPITAL TULCHAN

ACTIVISM

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www.activistinsight.com Editor’s letter Josh Black, Activist Insight

t may be a touch ironic that the In combative and media-hungry Elsewhere in the magazine this month, print magazine you have in your campaigns of the type Icahn specializes we have an overview of The Children’s I hands is focused this month on how in, Tweets are a journalistic delight, Investment Fund’s long-running activists are using the internet to further requiring little to no editing and campaign at Japan Tobacco. For an their efforts to shake up corporations. often forming a story in themselves. international team, TCI has a very English Indeed, activists are increasingly coming Issuers, which often put considerable patience about its investments, and online in search of new audiences for restrictions on their social media teams has been pursuing the full privatization their ideas, and I hope you’ll agree this and rarely offer much personality, are of the company for years. At a time makes writing about the potential and likely to be caught flat-footed, although when Japan is seeking a revolution in pitfalls of social media a timely move. eBay’s well-orchestrated response to its corporate culture, the steady stream Icahn’s campaign to spin-off PayPal of activism there should be welcome. Our activist interviewee, Sahm Adrangi may prove to be a model for the future. But change has been slow to come. of Kerrisdale Capital, has been As the New York Times reported this publishing his investment research Future week, over 900 Japanese companies online for years. When Barington campaigns hold their annual meetings on the same Capital Group took a stake in Darden may also day each year, ostensibly to make life as Restaurants last year, it did not simply benefit from difficult for investors as for racketeers. upload a presentation to its website the personal touch” but hosted a full-on webcast, led by its For those unable to make the exciting CEO James Mitarotonda. Whether this Now, with Clinton Group’s largely array of conferences in London this practice will lead to greater interactivity “successful campaign at ValueVision summer, we have reports from two that between activists remains to be seen, Media, we may have entered the age of hosted their fair share of discussion but it seems unlikely that activists will video. Given that the company operates about activism. I am personally glad to want to close down any avenue of a TV-shopping network, Clinton Group’s have had the opportunity to speak at communication that adds the oxygen of decision to make a film of its nominees events organized by ArrowCon Partners, publicity to their campaigns. discussing the campaign made sense. IR Magazine and the IR Society this month, and to hear many interesting Twitter became a big talking point in That said, future campaigns may also tales of corporates’ encounters with the activism world when Carl Icahn benefit from this personal touch, even if activists. joined the social network last year, the impact will be less than the famous and as comments from his Community Kennedy-Nixon debate. Personal It only remains for me to say thank you Manager for our feature article make impressions may not be overwhelmingly for reading, and please don’t hesitate clear, he thrives on a crusading spirit important for an investment community to get in touch if you have anything you in his approach to investing. Indeed, used to going through voting decisions would like to discuss. perhaps because they are pithier and at speed, but it could be useful for more personal, Icahn’s tweets are more activists wishing to make a point about [email protected] eagerly awaited than his regulatory the quality of its slate and issuers filings, though they often contain similar wanting to emphasize the openness of information. their boards.

2 Contents Activism Monthly Premium, July 2014

2 Editor’s letter 4 The social activists 4 8 7 London value investor conference A review of the event 8 A vital channel An interview with David Shriver, Tulchan Communications 10 Opportunity strikes An interview with Sahm Adrangi, Kerrisdale 10 12 The growth of activist investing in Europe conference A review of the event 14 Revolt on bankers’ compensation spreading 16 TCI at Japan Tobacco 18 News in brief 20 New investments 22 The activist view 23 Activism in numbers

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Contributors: William Duncan and Mike Cassell Front cover image: Twin Design/Shutterstock.com The social activists

Social media can destroy reputations, lead to product boycotts and send a company’s stock price into freefall. Now, corporations worldwide are waking up to the fact that they could also find themselves under fire online from activist investors who have ousted embattled CEOs, overthrown boards and forced changes in well- entrenched business models.

With corporate activism on the rise, companies are realising they may have a yawning gap in their defences; it has become essential that they understand the growing impact of social media—such as Facebook, Twitter, LinkedIn and YouTube, as well as the rapidly multiplying number of investment community websites—in order to devise strategies for responding effectively once they find themselves in the firing line. One panellist at the IR Society summer conference this month told how his firm had used LinkedIn groups to source users of a company’s product in order to gauge customer satisfaction. “MOST INVESTORS STILL OPT FOR THE TRIED-AND- TESTED ROUTE OF A SPOT ON CNBC OR BLOOMBERG WHEN THE OXYGEN OF PUBLICITY IS REQUIRED”

ocial media has already activism is on the march, with 67% of Michelle Icahn, the Community become a key component of all respondents expecting use of social Manager at Icahn Capital, told Activist Ssecurities markets, according media to increase in the coming year. Insight recently that her father “chose to Charlie Palmer, Senior Managing And there have already been enough to adopt Twitter and other forms of Director in Strategic Communications wake-up calls to alert businesses to social media such as his website, the in the London office of FTI, who notes the dangers of being ill-prepared. Shareholders’ Square Table, because that Bloomberg includes Twitter in its he firmly believes they will greatly help feed of potentially market-moving news. in his overall mission to highlight and “Activist shareholders increasingly use Companies hopefully remedy the dysfunction of social media to break market-moving can Corporate America.” She added that news. Carl Icahn’s Tweet about a increasingly Carl, who has been vocal in his belief meeting with Tim Cook of Apple added expect such that institutional investors are too quick around $17bn to Apple’s market cap,” fights to protect their to walk away from stocks rather than he says. Activism is comparable to reputations” lobbying for change, believed “that hostile M&A and is delivering the kinds through the various social media of superior returns that make investors “In August last year, long-time activist platforms such as Twitter, Facebook, sit up and take note, but issuers are and billionaire investor Carl Icahn used Tumblr, etc available today to American behind the curve. “Companies are often Twitter and Facebook to repeatedly investors and pensioners, [investors] not prepared to deal with activists and call for Apple to expand its stock can easily be made aware when their initial response, which is critical, is buy-back programme. He backed off management is doing a very poor job poorly thought through often leading to when the company went some way and nothing is being done about it.” an escalation of the situation,” he adds. to meeting his demands; but more recently he increased the intensity of Even so, there are pitfalls for activists There is now every indication that his online activism at eBay, blogging to be wary of. The press reckoned that companies can increasingly expect furiously and inventing the hashtags, a stray tweet cost Icahn around $2,000 such fights to protect their reputations. #notworldclass and #spinpaypalnow when he failed to notify the SEC he was A recent survey by Activist Insight and to promote a partial IPO of payments commenting on Dell and was forced FTI Consulting confirms that online arm, PayPal. to instruct lawyers to make a hasty securities filing or face the regulator’s wrath. A selection of Icahn’s top tweets With costs so high, you might be @Carl_C_Icahn 13th Aug 2013 forgiven for asking why activists bother using social media. Admittedly, most We currently have a large position in APPLE. investors still opt for the tried-and- We believe the company to be extremely tested route of a spot on CNBC or undervalued. Spoke to Tim Cook today. More to BloombergTV when the oxygen of come. publicity is required. @Carl_C_Icahn 1st Oct 2013 But activists can often benefit from Had a cordial dinner with Tim last night. We having their arguments and analysis pushed hard for a 150 billion buyback. We accessible online, especially in proxy decided to continue dialogue in about three fights. One way of doing so, according weeks. to Greg Taxin, President of Clinton Group, is to create a campaign @Carl_C_Icahn 15th Aug 2013 microsite. These are “a nice repository NYT’s thesis that Ackman’s actions prove for all our letters, proxy statements something is wrong with activism is specious. and materials, because shareholders His actions prove only something is wrong with don’t always look at these until right Ackman 5 “HIGHLIGHTING AN ACTIVIST SITUATION CAN BE PROFITABLE. SHARES IN APPLE SURGED AFTER ICAHN FIRST DISCLOSED HIS POSITION ON TWITTER”

before the vote,” he says. In contrast to a company’s rather cluttered and Social media use by activists—a timeline egalitarian SEC page, microsites draw June 2006: The Icahn Report is launched, a short-lived bully pulpit for the investor. attention only to one side’s materials, as well as favorable press coverage. July 2007: Eric Jackson assembles a shareholder movement at Yahoo via YouTube Doing so could prove worthwhile, videos. even with well-informed electorates. December 2010: Icahn launches savelionsgate.com, one of the first campaign Drawing on another survey from micro-sites. last October, FTI says that 40% of October 2012: Kerrisdale Capital begins sharing research on Twitter. analysts and portfolio managers seek information from third-party influencers August 2013: Apple market-cap gains $17 billion following an Icahn Tweet. via social media. January 2014: Barington Capital hosts open webcast on Darden plans.

April 2014: Third Point makes up for dry past offerings with a Sotheby’s campaign A recent innovation, pioneered by micro-site complete with reworked masterpieces. Clinton Group in its proxy fight with ValueVision Media, is video footage May 2014: Clinton Group creates a video for its proxy contest at ValueVision Media. of dissident nominees sharing their thoughts on the company. The video, thought up by one of Clinton Group’s dynamic and visual platform content, affairs to make quick decisions about nominees, was “helpful,” Taxin including everything from blog posts to financial issues which are typically reckons. Given that the company board of director videos. outside their remit. Advisers counsel operates an online shopping channel, that these different functions can no the video was a way for the activist to Companies targeted by activists are longer be left to operate independently, “show what we can do,” he adds. also amplifying narratives of their particularly in the case of social business strategies, using, for example, media through which information and Highlighting an activist situation can YouTube videos, and also employing opinions can be so rapidly generated. also be profitable. Shares in Apple, the use of so-called issue specific eBay and Family Dollar surged after micro-sites, allowing them to mount But it should also be remembered that Icahn first disclosed his position on detailed defences for an audience of activism via social media is not solely Twitter. In another sign of things to analysts, investors and the media. about confrontation. Co-operation come, more than two-thirds of self- Icahn-target eBay launched such a site and consultation with companies in proclaimed activists said in response in response to the activist, featuring an effort to find common ground is a to the FTI/Activist Insight survey that posts from directors rebutting the totally legitimate approach. Only too they would support other campaigns. activist’s arguments and making the well aware of what can now happen to case for retaining PayPal (obligatory a business that finds itself at odds with Naturally, issuers are starting to hashtag: #bettertogether). critics out there in the digital world, become more web-savvy. Last companies would be wise to react year, the SEC said it was fine for Nonetheless, one clearly identified constructively when they can, rather companies to post information that weakness in many business’ attempts than simply returning fire. might be covered by Regulation Fair to control the terms of public debate lies Disclosure on social media channels, in their traditional, internal demarcation As Mitzi Emrich, Managing Director, as long as it had previously directed lines. All too often, walls are erected Digital and Social Engagement at FTI, investors to these channels as a between the marketers, who talk to says, “It is now critical for companies to source of potentially market-moving consumers, and corporate affairs, have a social media presence, to share information—a decision that should who deal with governments, non- information across a broad range of make it easier for issuers to respond. governmental departments and the both traditional and digital channels media. Understandably, CFO’s rarely and use emerging media to connect Indeed, among the top tactics now take an active role in a company’s daily with stakeholders and influencers in being incorporated into “activist social media management, but in an new and meaningful ways.” defence” systems is a push for more activist situation this leaves corporate

6 London value investor conference Activists ValueAct Capital and Southeastern Asset Management share their insights

On May 22, London played host to Hawkins who told Michael Dell to and their fellow board members at two distinguished activist investors. repurchase shares, the investor said, other companies). That is equivalent Activist Insight was there. but Dell who took this to extremes. to around one-quarter of the public companies in America, and an effort Outsiders in the board room Attention at the conference was prone that culminated in a billion-dollar to drift to Japan, where Southeastern campaign at Microsoft. “We tend to think about our has invested since the 1998 Asian investments in terms of commissions markets crisis. Despite an unhappy Two examples of ValueAct-style and omissions. It’s not the omissions time at Olympus (the firm made activism came in the form of that keep us up at night.” Mason money, Hawkins said, despite a huge current hot investment Valeant Hawkins, the founder of Southeastern corporate governance scandal and Pharmaceuticals International, and Asset Management and a noted value Adobe. At the former, where Morfit investor, kicked the day off with an Partnering was until recently a director, ValueAct admonition about ‘the importance with a bad made the CEO borrow $5 million to of terrific partners’—based in part leader is a buy stock. “If he delivered less than on William Thorndike’s study of eight recipe for 13% TSR [total shareholder return], successful CEOs, The Outsiders. In sleepless nights” he’d be the worst paid CEO on the a era when few stocks are trading at S&P. If he earned 45% he’d be the deep discounts, investors are more “the government blocking the sale of a best,” Morfit said. “He earned about reliant on the actions of CEOs for medical devices unit), it was “difficult 85% and kept that up.” their returns, Hawkins warned, but to generalize,” with some companies “partnering with a bad leader is a providing relatively good returns on At Adobe, ValueAct opted to recipe for sleepless nights.” equity. change the business model from a license-based to a subscription Southeastern, which managed $35 ValueAdded model, Morfit said. The result was billion at the end of March, is loath to a big cut in forward EPS—normally call itself an activist investor (one of Newly appointed Microsoft board something prized by the market, its portfolio managers, watching the member Mason Morfit also spoke but in this instance, well-rewarded. speech, says the firm prefers others at the conference, emphasizing Adobe’s stock has increased 154% to do the shouting and screaming). his firms’ personal networks and since ValueAct first disclosed its Nonetheless, the firm had a role focus on executive alignment investment, around three-times the in two major corporate changes in with shareholders. In 14 years of pace of the S&P 500 Index. 2013. First, at Chesapeake Energy, investing, ValueAct has sat on 37 Southeastern played a role in the public company boards. Thanks to a Speaking to Activist Insight premature retirement of CEO Aubrey dedicated summer intern, it believes afterwards, Morfit predicted a McClendon. Then, having turned its that this gives it connections to 1,214 downturn in activism, but said attention to Dell, the asset manager boards with one degree of separation ValueAct had been assessing sought to influence the PC-maker’s (i.e. directors who have sat on opportunities in the UK and would capital allocation policies. It was boards with a ValueAct nominee likely return.

7 A vital channel An interview with David Shriver from Tulchan Communications

How important is it for companies to you as a company takes place and in your dealings with the media. build a relationship with the media as a the big issues are debated. As we To repeat, the conversation kind of forward defense for activism? often say, if a conversation isn’t taking that takes place about you as a place then you have no corporate company defines your corporate Having a reputation for openness reputation. The media conversation reputation. That conversation and transparency is very important about you will take place across a takes place across a variety of for a company. If you have an activist variety of channels including print, media platforms and the self-aware situation and you don’t appear to digital, broadcast and social media. company engages with all of them. have wanted to engage in peace- Successfully engaging with the media time, you’re potentially storing up requires joined-up communication. Activists often seem to make problems for yourself. companies defensive. Is there a The media reason issuers don’t always seem to A company’s starting point should be will report the respond robustly? to try to be self-aware in understanding facts, but they how its narrative plays out with key need context It’s probably the case that some audiences among its stakeholder to give those facts companies are not sufficiently in groups, particularly the media. This meaning” touch with key stakeholders, including helps you be proactive in addressing their shareholders, and therefore are issues that your stakeholders may “The media will report the facts, but taken unawares by the approach of have and possibly pre-empting any will need context to give those facts an activist. If you don’t appreciate the damage to corporate reputation. meaning. Companies that know the issues your key stakeholders have, main correspondents tend to get a around corporate governance say, Companies need good relationships fairer hearing. you will struggle to respond when a with the media for sure. But they also shareholder challenges you and you need to understand the feedback However, the days when you could will always be reactive rather than loop between the media and the just talk, in a silo, to a small number proactive in addressing the issue. capital markets. One indispensable of key journalists are over. The way to do this is to engage with your digitalization of the media means that Sometimes companies can feel they shareholders on a regular basis, you need to use all media platforms to are being persecuted by the media either directly or through a third party, tell your story and you can no longer in an activist situation. Dissension in order to understand what they are be inconsistent with the narrative between a board and a prominent really thinking—rather than what you you deliver to different stakeholder shareholder is newsworthy and will just think they’re thinking. groups. be reported and it is possible to go away feeling battered and bruised How important is it for a company to Consistency requires, among other and poorly treated. The antidote to cast a wide net with its media strategy? things, discipline in delivering that is being prepared, being open your story to different stakeholder and transparent, and responding The media represents a vital channel groups; getting social media right; robustly to legitimate debate around through which the conversation about and being open and transparent issues of importance to shareholders.

8 “IT’S ALWAYS GOOD IF YOU HAVE A BUBBLE AROUND A COMPANY IF YOU HAVE SOMEONE WHO CAN PRICK THAT BUBBLE”

Does the prevalence of activist investors onside is a crucial element In as much as Twitter is increasingly a investors make it more important in any activist defence. media channel through which debate than ever for companies to takes place about a company, and know how investors view them? Why does the media like activism depending on the strategy an activist stories so much? Do they wants to employ, I think activists I always think that to be forewarned is sympathise more with activists? will use it more. Some activists will forearmed. A good way to ensure this prefer private engagement, and that is a regular independent perception The media loves a good activist may increase as the effectiveness study that assesses the level of story and that’s not going to change of this approach becomes more understanding and the degree of any time soon. First because it’s evident. But those that want to make support a company has in the investor newsworthy. Second, because it the debate more public are likely to community for its strategy, its capital is often about important issues to see Twitter, and other social media allocation policy, and its senior do with a company’s balance sheet platforms, as an important channel management team. It should identify or capital structure which are of to get their messages across. any issues or areas of concern. It will crucial importance to the company’s also identify the positives. future and well-being. Of course, Tulchan Communications is the personalities involved on both an advisory firm specializing Being a self-aware company is about sides can bring to life issues which in financial and critical being conscious of what shareholders occasionally can seem quite technical. communications that represents really think and a regular strategic both activists and issuers in deep dive provides companies with Part of the reason activists have market communication. It recently the opportunity to address any issues been represented as a force for acted for F&C Asset Management proactively, reinforce and clarify their good is that they have focused on against Sherborne Investors and message, and ensure the investment fundamental corporate governance is advising Knight Vinke on its case is better understood ahead issues, which some companies engagement with UBS. of any activist showing its hand. can, on occasion, lose sight of. It’s always good when, if you have a Investor Perceptions, a joint Engaging with investors in this way, bubble around a company, you have venture between Rothschild apart from demonstrating good someone who can prick that bubble, and Tulchan Communications, corporate governance, provides and the right that comes with the risk delivers authoritative investor shareholders with a conduit to the of investing in equities is that you get insights to company boards from board through which their collective to hold boards to account. Activists an independent perspective. voice is heard, which in turn allows should be praised when they do that. them to help shape or influence the Contact information: debate. Dialogue, engagement and Do you think activists will use social David Shriver understanding are key in all of this. media, and Twitter in particular, more Email: [email protected] Having well informed and supportive in future? Phone: +44 (0)20 7353 4200

[email protected] New Court St. Swithin’s Lane London EC4N 8AL +44 (0)20 7280 5081 www.investorperceptions.com

C6964 INVESTOR PERCEPTIONS_ADVERT_v2.indd 1 20/03/2014 12:04 Opportunity strikes An interview with Sahm Adrangi from Kerrisdale Capital

Sahm Adrangi has just returned from For a firm that has made its name infrastructure firm Lindsay Corp to be the GAIM International Conference in in novel approaches to investing, less conservative with its capital led Monaco when Activist Insight calls. Kerrisdale almost seems late to to progress of sorts, but in the end As the only keynote speaker from the activism party. In 2010 and Adrangi says it made more sense to an activist firm, and a discussant of 2011, it enjoyed enviable returns have a dialogue with management activism with Eric Knight of Knight shorting fraudulent Chinese and exit the stock quietly, dropping Vinke, it was a sweet spot. According companies that had secured US plans for a proxy contest. to press reports, “special situations”, listings through reverse mergers. activism and distressed debt are Fortuitously, Morgans Hotel Group some of the hottest topics at this, the provided a better platform for the hedge fund meet-up par excellence. In 2010 firm’s first significant campaign. and 2011, The company had an unsettled Opportunities abound Kerrisdale shareholder base as a result of a enjoyed proxy contest the previous year, With levels of interest that high, enviable returns but major shareholder Ron Burkle activism has become a branding tool shorting fraudulent looked unlikely to act on his letters Chinese companies” for hedge funds, who seek investors “ calling for the sale of the company. looking for uncorrelated returns. Instead, his Yucaipa Companies Advisers say this partially accounts Indeed, it was not until 2013 that it agreed to a standstill agreement in for high levels of activism in small-cap really dipped its toes into the activism return for which the company would companies—young hedge funds now pool, starting with a campaign to repurchase its convertible bonds. want either career-defining victories oppose a merger at a German REIT in their first proxy contests, or at least called Prime Office, and culminating “We and Burkle had the same opinion a campaign that will put them on the in a proxy contest against Morgan’s of what the company should do,” map. Hotel Group that ended just last Adrangi says. “We think the company month. “We’re more opportunistic,” should run a full auction process, Kerrisdale Capital, the now-$300 Adrangi explains. “We’re not afraid to Burkle thinks the company should million hedge fund Adrangi founded use that tactic to enhance returns for run a full auction process, and we in July 2009, employs activism our investors.” think shareholders believe the same.” selectively and opportunistically. “One of the benefits to our space If the last year has been a learning The day before Kerrisdale won two is that we can explore different curve, it has been a steep one. Four seats on the company’s board, strategies and markets,” Adrangi in five shareholders at Prime Office Morgans hired an investment bank to tells Activist Insight, pointing to his backed the deal, despite Kerrisdale sound out potential buyers. And while firm’s open mandate. “And there releasing a presentation explaining the stock has been choppy since the are a lot more opportunities across its view that a badly-timed IPO, meeting, Kerrisdale, Yucaipa and a global markets than there are activist capital raise and poorly negotiated number of shareholders may yet get investors able to exploit them.” merger left shareholders with a 55% their premium. net discount. A call for irrigation and

10 “THERE ARE A LOT MORE OPPORTUNITIES ACROSS GLOBAL MARKETS THAN THERE ARE ACTIVIST INVESTORS ABLE TO EXPLOIT THEM”

Self-publishing that he hopes the notes impact on So far, Kerrisdale has stopped short public opinion. “We’re trying to build of emulating this model, with Adrangi But does it not worry the firm’s a reputation for being sophisticated saying his firm prefers to align with investors when Kerrisdale switches thinkers,” he adds. good management on the whole. from a passive position to an activist However, he points to criticism of one overnight? The firm’s approach Adrangi’s hero in this and other the Morgans executives during the is somewhat maverick, it seems, activism-related areas is Third Point campaign and suggests “at some with the team reliant on good Partners, the hedge fund run by Dan point we probably will [write one of returns to keep investors happy. Loeb. “Some of Third Point’s letters those letters].” “We communicate to our investors,” have been exceptional in informing Adrangi says. “Our investors can shareholders,” Adrangi says. “They The next six months of this year is expect us to do a bunch of things tailor shareholder activism to likely to be equally opportunistic, they wouldn’t necessarily expect us specific situations. Every company is says Adrangi, with no activism in the to do.” different.” pipeline. However, with Kerrisdale known to be opportunistic about Part of this reputation for openness Of course, one of the things Loeb publicity as well as investment is derived from Kerrisdale’s research, has become known for, in addition opportunities, there is surely the which it publishes on a weekly basis to short spells on company boards possibility that something will by e-mail and on Twitter. At the time and hand-picking management, is emerge. of writing, the number of followers the sharply worded public letter that of its Twitter account was nearing eviscerates a CEO. Common themes Sahm Adrangi is the Chief 6,000. include a “good ol’ boy” set of ethics Investment Officer of Kerrisdale and tooling around in luxurious Capital, a $300 million activist “We pride ourselves on being one vehicles, imbibing at shareholder hedge fund based in New York. of the most forward thinking firms expense. in that area,” Adrangi says, adding

Case Study–The Morgans fight

“You couldn’t get more activist than and calling on him to sell the company. of PR campaigns.” It went on to accuse we did at Morgans,” Adrangi says Those circumstances created what the activist of a “self-interested pursuit of a campaign that saw it emerge Adrangi calls “the most obvious activist of a proxy fight… motivated primarily by with two nominees elected to the situation ever,” and Kerrisdale duly a desire to seek publicity.” Even so, it board of the boutique hotel operator. jumped in by announcing that if no one took the announcement a day before else did, it would nominate a slate of the vote of a plan to hire Morgan Stanley Morgans had been at the mercy of its directors at the next annual meeting. to explore strategic alternatives to limit shareholders since last proxy season, Kerrisdale to two seats on the board. when the company’s largest investor, Yet if Adrangi hoped Kerrisdale’s slate Jason Talisman’s OTK Associates, would coast to a comfortable win, he Speaking in the aftermath of the defeat, emerged as surprise winners of all was soon disabused of that notion. Adrangi admits that his slate came in seven board seats. That upset Ron In March, Morgans issued a press for a lot of criticism. “I’m not going to Burkle, whose Yucaipa Companies release saying it believed Kerrisdale’s say we did everything right. There are were the second largest holder. Yucaipa “unqualified slate of colleagues and certainly best standards and we’ll get sued OTK for an improper solicitation, cronies shows the obvious lack of more experienced.” The first proxy fight while in September, Burkle fired off interest by serious industry professionals was “a learning process,” he admits, a now famous letter which accused from wanting to associate themselves but one which nonetheless provided a Talisman of “acting like a spoiled child” with Mr. Adrangi, his fund and history valuable victory in its first public fight.

11 The growth of activist investing in Europe conference A review of the event, hosted by Arrowcon Partners at the Waldorf Astoria on June 2nd

ctivism has continued subsequently settled, said activism impact an activist intervention might its meteoric rise since was likely to be of interest anywhere have, attention turned to assessing A the financial crisis, and an investor recognized deep value. the risks of becoming an activist is becoming a globalized force. “It’s always preferable to work with a target, with Crescendo Partners That was the message from David company behind the scenes,” Silvers founder Eric Rosenfeld on hand to Rosewater’s opening remarks. The said. “But you have to look at what explain his stock-picking process. Co-Head of the Schulte Roth & Zabel happens when it gets to a public “[Activists] need an unhappy LLP New York and London-based discourse.” shareholder base,” he said, noting Shareholder Activism practice said he that his firm read earnings call had repeatedly spoken to US activists The current transcripts, spoke to analysts and about the prospect of an increase in environment other shareholders and assessed situations in Europe and was poised only works if voting records as part of its due to enjoy increasing interest from institutional diligence process. “When companies investors and issuers alike. investors support see there is disappointment, they activists” need to listen,” he counselled. The Perfect Storm “The rise in activism is a result of what According to David Sola, a London- Indeed, for David Trenchard, Vice- Camberview Partners founder Abe based banker at Houlihan Lokey, Chairman at Europe-based activist Friedman likes to call “The Perfect investment banks want to be trusted Knight Vinke, activism is increasingly Storm.” In this interpretation, the advisers, a position that occasionally being adopted by traditional rise of professionalized corporate makes them under-critical. “You have long-term investors. “The overall governance functions, corporate to be able to tell the company they’re acceptance level is very high,” he told scandals and capital trends that going to get whacked,” he says. the conference. “Typically, an activist have seen institutions exposed to a can perform a level of research that larger and broader range of stocks Rachel Posner, an adviser to makes [institutional investors] want to have ended the Wall Street Walk. corporate clients with AST, said talk to us.” “The current environment only works issuers had to be proactive, and if institutions support activists,” he communicate the efforts made to Yet it is not only ideas that says. But activists have been quicker engage shareholders early on in their institutions look to activists for. to woo institutions than many issuers. proxy statements. Other proactive Increasingly, institutions are voting “Activists have begun to hone in structural defenses mentioned at the with activists who identify ways to and understand what drives vote conference included compensation force underperforming companies decisions,” Friedman says. “Activists packages with long-term incentives, to change course. Dan Silvers, a have tested all the messages.” diversity and expertise across the Managing Director at SpringOwl Asset board of directors and, in the case of Management and a board member Identifying and reducing risk M&A targets, poison pills to restrict an at online gaming firm Bwin.party activist’s ownership of the company. Digital Entertainment plc following a With issuers therefore justified in proxy contest initiated by his firm and being concerned about the possible Giuseppe Recchi, the Chairman

12 “IIT IS NOT GOOD ENOUGH TO BE [A] PART-TIME [CHAIRMAN], WORKING ONE-DAY A WEEK”

of Telecom Italia who faced a London’s financial press was singled before, management’s credibility gets shareholder revolt orchestrated by out as a factor that might prove dinged,” he warned. Investor relations Mario Fossati’s Findim Group, said important in future campaigns by departments should perform a role activists should be welcomed, in numerous speakers, with Joele Frank analogous to “a canary in a coal the right context. Those without Partner Andrew Siegel noting that mine,” according to Siegel. long-term horizons might threaten public opinion was crucial to a good a company, he admitted, but it was settlement agreement. According to Lawyers at the event were quick to important to know the expectations David Shriver, a Managing Partner at point out that the UK is often seen of one’s shareholder base in order Tulchan Communications, the media as an activist-friendly environment, to align the company’s interests in London are scrappier and more with investors able to requisition with those of its owners. “The role meetings, mail their resolutions with of a chairman is to engage with all The media in the company’s proxy and use the shareholders and reflect their views,” London are drawn-out process outlined by the Recchi said of his own experience. “It scrappier and takeover code to influence events. is not good enough to be part-time, more drawn working one day-a-week.” to controversy, and Stephen Nash, a Partner at therefore happy to write Eversheds, highlighted insider Beating activists at their own game about activism” trading rules as a major risk to “ activists—and one that might force According to David Hunker, an drawn to controversy than elsewhere, them to remain outside of the investment banker advising on M&A and therefore happy to write about negotiating room when conducting on behalf of JP Morgan, Trian Fund activism. However, ad hominem their campaigns, while Piers Prichard Management’s Nelson Peltz once attacks were usually ill-advised, he Jones of Freshfields noted it was not called the CEO of Ingersoll Rand noted. unknown for activists to make insider on a Friday evening, saying the Wall information public in order to give Street Journal had picked up on his Chris Young, who runs activism themselves more freedom to act. As fund’s stake in the company and defense services for Credit a result, Schulte Roth & Zabel’s Jim would run a story on the activist’s Suisse, said it was important for McNally recommended companies likely demands on Monday. The need management to keep boards in regularly use “section 793” notices to get a response to the paper and the loop on strategic questions. “If (Companies Act 2006) to find out contact major shareholders was boards ask management why they who their shareholders are. critical, he recalled. haven’t heard an activist’s idea

Keynote address—Eric Knight, Knight Vinke Asset Management

Eric Knight, the founder and principal One of those opportunities was at Recently, Knight Vinke has focused on of Knight Vinke Asset Management, French retailer, Carrefour, whose Europe’s banking sector, and on UBS in set out to demonstrate his firm’s size and influence in the French retail particular, where it advocates separating unique brand of activism, long-only markets Knight said made a high the investment bank. Just reading the and focused on large-cap value degree of moral and intellectual integrity bank’s annual report took three days, opportunities. That was a neglected absolutely necessary in the race for Knight said, with proper understanding sector, he argued, but the rise of passive public opinion. According to Knight, the taking two-to-three weeks. The investor investing, lack of discipline from private activist spent $2-3 million in research wanted to understand how risky equity, and the fragmentation of control before investing in the company, but investment banking really was, he said, (with regulators, unions and politicians once invested dropped its support for and recently data on the volatility of the all interested in certain companies) a real estate spin-off when it recognized bank’s assets and liabilities suggested had created “ownerless companies.” that the plans were ill-considered. that the answer could be significant.

13 Revolt on bankers’ compensation spreading A look at the latest research from Proxy Insight

roxy Insight data indicate In 2012, the remuneration resolutions where they voted. The that shareholder opposition policies of five of these 20 banks full data are shown in Fig 2. below. P to remuneration at the world’s received votes against of 10% or largest banks this year reached more. Fig 1. below provides further Fig 2. Shareholders/advisors who average highs last seen in 2012. detail. voted against/abstained from bank remuneration proposals: The results of mostly non-binding Who votes against?

“say on pay” votes at the annual Rank Shareholder/Advisor Against/ meetings of the top 20 banks saw Proxy Insight has analysed the Abstain an average 13.1% of shareholders remuneration votes of major 1 Domini Social 100% vote against management in institutional investors at each bank Investments 2014—the same as in 2012, and a during 2013 to illustrate the level of 2 Trillium Asset 100% significant increase on the opposition from long-term investors. Management average 8.4% who voted against Domini, Trillium and Green Century 3 PIRC 100% management last year. opposed management on every 4 Green Century Capital 100% remuneration vote, where they Management A number of high profile revolts voted, as did Proxy Voting Advisor 5 PGGM Investments 72.2% during this year’s proxy season PIRC, which has a large influence 6 British Columbia 61.5% embarrassed the likes of Barclays, over local authority pension funds. Investment Management JP Morgan Chase and Standard Corporation Chartered, which all received votes Public pension funds such as 7 Aviva Investors 53.3% against exceeding 20% of their PGGM, British Columbia and APG 8 APG 50% shareholder base. also voted against management on a frequent basis. However, perhaps 9 Threadneedle 50% What has been less noted is that more significant is that a number Investments opposition to bankers’ pay is of traditional asset managers 10 Fidelity Worldwide 50% more diffuse today than in 2012, such as Aviva, Threadneedle Investment with votes against management and Fidelity Worldwide opposed exceeding 10% at ten banks. at least half the remuneration

Fig 1. Top global banks—% votes against for remuneration plans:

Bank 2012 2013 2014 Bank 2012 2013 2014 Bank 2012 2013 2014

Citigroup 54.6 8.3 14.9 HSBC 10.2 11.0 16.1 BNP Paribas n/a n/a 6.8

UBS 36.8 15.8 11.2 JP Morgan 7.2 5.5 21.2 Bank of America 6.9 6.1 6.4

Credit Suisse 31.6 10.3 16.6 Goldman Sachs 5.1 12.3 16.5 Lloyds 2.3 4.1 12.7

Barclays 26.9 5.3 24.0 Morgan Stanley 5.2 13.2 7.3 Banco Santander 8.1 6.4 4.0

Standard Chartered 7.4 7.2 40.8 Deutsche Bank 5.8 11.3 n/a Wells Fargo 3.4 2.2 2.1

As simple as: 1 Voting policies and contacts of each investor 2 Who voted and how at any shareholder meeting 3 How an institution typically votes on a particular issue

Call or visit our website to arrange a trial:

+44 (0) 20 7788 7772 • www.proxyinsight.com TCI at Japan Tobacco

Japan Tobacco hen Shinzo Abe became Prime Minister of Japan in Industry Tobacco Products W 2012, investor sentiment began to warm to a country long Sector Consumer Goods known for its overvaluations and HQ Tokyo, Japan prickly corporate governance. This Market cap ¥ 7,386 bn * year, the government drew Abe’s Exchange Tokyo Stock Exchange ‘third arrow’—corporate reform— from its quiver and let loose. Opinion Ticker 2914 is divided on whether the policy * accurate as of 01 July, 2014 changes hit the bullseye, but an activist investor was taking note. He says the stock is still a “unique multiple close to its peers, TCI says. The Children’s Investment Fund opportunity, poorly understood While the stock is currently valued (TCI), which has a base in the City by investors.” At both the 2012 at 10-times earnings, TCI believes of London but operations globally, and 2013 annual meetings TCI put the company should be trading had already held stock in one of the forward proposals to significantly at a premium to its peers as it has country’s premier brands for a year increase the company’s dividend. faster sales and profit growth than when Abe took office. According to Both times it was rebuffed by fellow competitors, but management of Oscar Veldhuijzen, the Partner at shareholders, but analysts say JT’s balance sheet has led to a 30% TCI responsible for the investment, the activist has “raised the bar” in discount based on its enterprise Japan Tobacco stock was trading terms of what can be considered a value to operating profits. With a at “distressed levels” back in 2011. meaningful return to shareholders. significant buyback, Veldhuijzen Since the beginning of that year, sees 15-times earnings as realistic, however, it has performed well, Repurchasing more shares could representing a 50% upside. rising 143% to date. Yet Veldhuijzen be an important symbol that the believes there is more to come. company should be valued at a Another policy TCI has advocated

16 “FURTHER UPSIDE FOR THE STOCK MAY COME FROM PRICING UPDATES, INCLUDING IN JAPAN AND RUSSIA”

2914 stock since January 2013 2914 Snapshot

40,000,000 4,000.00 52 week high ¥ 3,800 * 35,000,000 3,500.00 52 week low ¥ 2,992* 30,000,000 3,000.00 Share price ¥ 3,703* 25,000,000 2,500.00 P/E 15.7 **

20,000,000 2,000.00 P/B 2.68 ***

15,000,000 1,500.00 P/Sales 3.08 **

10,000,000 1,000.00 * accurate as of 01 July, 2014 5,000,000 500.00 ** trailing 12 months, accurate as of 01 July, 2014 0 0.00 *** most recent quarter, accurate 04 January 2013 04 July 2013 04 January 2014 as of 31 Mar, 2014 Volume Closing Share Price (¥) Data provided by Reuters

for the past three years is for JT TCI the day before it was sent and there, including Gudang Garam, an to buy back the shares owned by approved of the sentiment. Indonesian company. the Japanese Ministry of Finance. In fact, the government has slowly Holding onto large amounts of As a result, a buyback seems unlikely relinquished its holding in the cash is not unusual for Japanese to become a priority for the company. company over many years. In 1985, companies. Indeed, in 2012, Indeed, JT appears philosophically the state privatized a third of JT’s Japanese companies increased opposed to TCI’s proposals. While shares. In 2004, the Ministry of cash holdings to $2.2 trillion. Yet, the activist states in its proposal that Finance sold shares down to 50.1% in the board’s response to TCI, the the “capital structure of the company and more recently, after further company states that buying back is underleveraged and the shares urgings from TCI and with capital shares would dampen its ability to undervalued,” the company claims needed urgently to rebuild the make future investments. In 2012, that it would have to borrow capital country in the wake of the tsunami it purchased Belgium’s Gryson NV to finance an increase in dividends. that hit the country in 2011, to 33%. for $661 million, and earlier this year acquired Zandera, maker of E-lites, That may not be all bad news Yet as Veldhuijzen stated in a and a leading e-cigarette brand in the however. Further upside for the stock recent letter to Shinzo Abe, “further United Kingdom. Financial details of may come from pricing updates, with privatizations are crucial to the this purchase have not been made Veldhuijzen noting that most taxes achievement of your economic public, but the company says that are fixed, so increases in consumer growth targets, and JT’s full the deal will have little impact on its products would have a larger impact privatization would provide Japan cash flow for the fiscal year, with a on profits. There is plenty of room with a strong boost in confidence mixture of cash and debt used to to raise prices in key markets like from the international investor complete this acquisition. Russia and the domestic one, he community.” In this it claims to have thinks. Bloomquist also thinks there an important ally—the company TCI sees little need for further large could be a significant earnings itself. In addition to noting a acquisitions and has actively tried to upside, with a increase in the Mevius company press release calling for full dissuade the company from making brand (accounting for roughly half privatization “in order to manage the a bid for its rival, Imperial Tobacco. of JT Domestic volume) from a mid- business competitively,” Veldhuijzen However, Erik Bloomquist, an analyst price offering to a premium offering says that a member of the board at Berenberg who covers the stock, providing “at least“ 15-20% profit discussed the letter to Abe with thinks there are opportunities out upside.

17 News in brief A round-up of the latest developments in activist investing

North America special meeting was no longer a good Cliffs Natural Resources has filed use of company resources. However, definitive proxy materials ahead of its Two proxy contests by Clinton Group Starboard also said it continues to July 2nd showdown with activist investor climaxed in consecutive weeks, leaving believe that there is value to be unlocked Casablanca Capital. As previously the activist with mixed results. Clinton at Darden and it would seek to remove a announced, the mining company is failed to win any of the three board majority of the board at the annual meeting. nominating only nine directors for its seats it sought at Xenoport and 11 board seats, effectively allowing passed only one of its stockholder Starboard also disclosed a new the activist two seats on the board. proposals; a requirement for the stake in packaging solutions company Yet despite that concession, Cliffs company to adopt a majority standard MeadWestvaco, saying that 2014 continues to argue that a victory for on future resolutions. However, the was a critical year for the company and Casablanca’s six-person, majority activist swept the board at ValueVision recommending cost-cutting, operational slate would be bad for shareholders. Media, winning four seats and passing focus and a $500 stock buyback. resolutions stripping out unfriendly Related Fund Management and bylaws. The new board decided to Corvex Management, the activists remove CEO Keith Stewart and replace Starboard which removed the entire board of him with Clinton nominee Mark Bozek. Value has CommonWealth REIT through a consent deferred its solicitation earlier this year after a previous Carl Icahn announced a new stake plans for a effort ended in arbitration, will seek to be in Family Dollar Stores, a mid-cap proxy contest at Darden reimbursed with the $33.5 million they retail chain headquartered in North Restaurants” spent in connection with the campaign. Carolina. Icahn believes the company, which instituted a poison pill in “North Tide Capital reached a New York-based hedge fund Orange response, should put itself up for sale. compromise with Healthways, gaining Capital launched a proxy contest against three board seats and the formation Canadian hospitality operator Partners Ackman’s Pershing Square Capital of a strategic review committee under REIT. The activist said it would nominate Management changed tact in its the leadership of North Tide nominee, a slate of new, independent trustees and efforts to press botox-maker Allergan Bradley Karro, as part of the deal. wants to buy a further 7% of the Ontario to sell itself to Canadian pharma company through a tender offer at $5 predator Valeant Pharmaceuticals D3 Family Funds engaged in per share. The company responded by International. The activist will now seek discussions with management at Rosetta postponing its annual meeting, filing a to remove Allergan’s board and replace Stone on a variety of issues concerning complaint with the securities regulator them with nominees more friendly to the company’s future. The activist, which and calling Orange Capital’s offer a ‘bait the takeover bid, in place of holding a owns an 8% stake in the company, and switch’ tactic aimed at securing referendum on the deal. Valeant started praised recent developments at the control of the REIT without paying for it. a tender offer for the stock after Allergan provider of language-learning solutions, rejected its second, revised offer. but also said the company should be Pennsylvania’s Metro Bancorp more focused, and should expand was targeted separately by three Activist investor Starboard Value has its board to include digital marketing activist investors, who wrote letters deferred plans for a proxy contest at and customer experience expertise. to the board arguing that the Darden Restaurants, saying that a company should be put up for sale.

18 Shareholders backed the management of Xenoport in the face of a proxy contest with Clinton Group.

Europe SpringOwl Asset Management’s Rangers Football Club, a Scottish nominee joined the board of Bwin. Premier League soccer team, was Irish-listed oil exploration company party Digital Entertainment, after the reported to be considering an £8 Petroceltic settled with Swiss activist invoked a right to appoint one million share issue. Laxey Partners, activist investor Worldview Capital director acquired with its initial purchase which raised protests when it offered Management. Worldview, which holds of shares in the company. Portfolio the cash-strapped club a £1.5 million over 20% of the company’s stock, was manager Dan Silvers was previously loan, indicated that it would be expected to vote in favor of a rights offering on the board of International Game interested in purchasing more shares. by the company, in return for significant Technology. Talks are continuing over board changes including two out of adding Michael Fertik, one of SpringOwl’s Rest of World seven seats on a slimmed-down board. candidates in its aborted proxy contest at Bwin, and possibly one other director Australian-listed Antares Energy Vincent Bollore took over as Chairman to the board. Shortly after Silvers joined announced the date of its special of French entertainment conglomerate the board, reports that the company meeting, where it will face efforts by Lone Vivendi. The company, which has sold was considering selling itself or some Star Value Management to remove video game-maker Activision Blizzard divisions caused a stock price surge. two of its directors and appoint five of and mobile network SFR over the last the activist’s nominees. The Chairman year, is attempting to reposition itself InterContinental Hotels Group of Antares, James Cruickshank, also as a content-based media company. announced a special dividend to be criticised Lone Star for “running a media paid at the end of June, perhaps in an campaign rather than constructively London-based fund Crystal Amber effort to persuade investors to back engaging with management.” disclosed two new positions. The the management in rebuffing potential activist’s Richard Bernstein told The suitors. Last month it emerged that 3.5% Ion Asset Management requested Growth of Activist Investing in Europe holder Marcato Capital Management Israel-based technology company conference that NBNK Investments, had called for the company to Orbotech add three items to its proxy founded to bid for over 600 units of be sold to a larger hotel chain. statement and delay the annual meeting Lloyds TSB and with a lawsuit against to allow shareholders more time to review the bank pending, offered little risk and Amber Capital, holder of a 1% its proposals. The activist has nominated a significant potential upside, adding share in Telecom Italia, told a news a four-man slate for the three-person that he had bought in at 75% of the agency that it wanted the company to board, with the fourth candidate filling a value of the company’s cash assets. reduce its exposure to Brazil. Banks new “external director” position. Other Bernstein also said that the portfolio holding a significant stake in the proposed resolutions include the removal of his second investment, in closed- telecommunications company left a of the company’s staggered board and a end fund Juridica Investments, defensive alliance formed in response review every second and fourth quarter was maturing well and that capital to a campaign by Marco Fossati’s of the company’s capital structure, should be returned to shareholders. Findim Group, and may sell their shares. dividend and share repurchase policies.

19 New investments A round-up of the latest activist investments

Activist Company Date Notified Stake Altai Capital Management ServiceSource International Jun 27, 2014 9.9% Altai is in talks with the service revenue management company, but did not go into detail about its plans. Dolphin Associates Rentech Jun 27, 2014 Unknown Describing itself as a long-term holder of the stock, Dolphin called for Rentech’s wood fibre business to be spun-off. Relational Investors Manitowoc Jun 26, 2014 8.5% Relational privately pushed for a spin-off of Manitowoc’s food services division in January and has now gone public. Paulson & Co Allergan Jun 25, 2014 2.0% Reuters reported that the activist had taken a position in support of the Pershing-Valeant takeover bid. Privet Fund Management Nobel Roman’s Jun 23, 2014 7.2% The small-cap pizza restaurant chain is an unusual investment for Privet, which nonetheless argues the stock is undervalued. Legion Partners Asset Management 1347 Property Insurance Jun 20, 2014 7.2% Legion Partners may look to influence board composition or capital allocation to improve the company’s price to book ratio. Timothy Stabosz Claude Resources Jun 20, 2014 5.2% Stabosz supports the idea of the company being sold at an acceptable premium and wants new board members. Lone Star Value Management Dakota Plains Holdings Jun 17, 2014 8.4% Prolific activist Lone Star says shares in the crude oil seller are undervalued and has sought meetings with management. JEC Capital Partners Synacor Jun 17, 2014 9.8% JEC Capital wants the company to halt its search for a new CEO and retain an investment bank to evaluate strategic options. Amber Capital Telecom Italia Jun 17, 2014 1.0% Amber Capital added its voice to those who believe the company should exit the Brazilian maket. Crystal Amber Juridica Investments Jun 17, 2014 3.6% The activist said Juridica’s portfolio was maturing and called for more capital to be returned to shareholders. Clover Partners Metro Bancorp Jun 16, 2014 Unknown

Clover Partners was the second of three activists to call on the company to put itself up for sale. Marcato Capital Management Goodyear Tire & Rubber Jun 16, 2014 4.3% Marcato is expecting the market to do the hard work for it at Goodyear, predicting a surge in tire sales and higher margins. Paulson & Co Extended Stay America Jun 11, 2014 27.2%

Paulson went from a passive to an active holder as the result of an agreement on the composition of the board. Timothy Stabosz Medient Studios Jun 10, 2014 5.4% Stabosz will seek to wrest control of the near-bankrupt film-making company from its CEO by calling for new directors.

Continued opposite...

20 Gold standard: Timothy Stabosz has offered to serve on the board of Claude Resources.

Activist Company Date Notified Stake

JANA Partners Civeo Corp Jun 09, 2014 11.5% JANA shifted its exposure to the accommodations company spun-off from Oil States International from its parent. PL Capital Banc of California Jun 09, 2014 7.1% PL Capital sent a long letter to the bank’s CEO highlighting its concerns about corporate governance and compensation. Lawrence Seidman Westbury Bancorp Jun 09, 2014 5.9%

Seidman is expected to call for changes to the bank’s capitalization or ownership structure in meetings with the board. Carl Icahn Family Dollar Stores Jun 06, 2014 9.4% Icahn has called for the sale of the mid-cap discount retailer, saying consolidation in this sector was “inevitable.” Norman Pessin Sharps Compliance Jun 05, 2014 4.9% The retired fund manager suggested he would make suggestions regarding Sharps’ “capitalization or operations.” Carl Icahn Fannie Mae & Freddie Mac Jun 04, 2014 Unknown Icahn is believed to be among several investors hoping the US Government does not wind up its largest mortgage securitizers. Nile Capital Management Midas Medici Group Jun 04, 2014 19.7% Nile Capital intends to nominate three directors at the IT company and has criticized its lack of financial reporting. Starboard Value MedWestvaco Jun 02, 2014 5.6% Starboard called for cost reductions, a buyback and operational improvements to unlock value at the packaging company. Relational Investors Magnum Hunter Resources May 30, 2014 16.1% Relational built its stake partially through a $150mn private offering and is expected to focus on operational issues. Norman Pessin Insignia Systems May 29, 2014 4.3% Pessin seems likely to benefit from earnings reports following the later Easter holidays and a previously announced buyback. Marcato Capital Management InterContinental Hotel Group May 29, 2014 3.8% The activist noted recent reports of a potential buyer and wants InterContinental to consider selling up. Becker Drapkin Management PowerSecure International May 27, 2014 8.8% Becker Drapkin may propose or recommend nominees for the electric utility servicer’s board. Canell Capital PMFG May 23, 2014 5.4% Carlo Canell’s firm has nominated two directors ahead of the machine-maker’s November annual meeting. Marcato Capital Management Life Time Fitness May 21, 2014 6.0% Marcato disclosed and then increased its stake in the gym-operator, possibly looking at the company’s real estate value. Iroquois Capital Group Alanco Technologies May 19, 2014 9.6% Iroquois, which specializes in small-cap and turnaround investing, may seek talks with the board, management or shareholders.

21 The activist view More results from the FTI Consulting/Activist Insight activist investor survey Activism in numbers

Activists successful in H1 2014

Activists were at least partially successful 6% in achieving their objectives in 66% of all 6% campaigns initiated and resolved in H1 2014 13% 60% Activist’s objectives successful 15% Compromise/settlement Activist’s objectives unsuccessful

Activist’s objectives partially successful

Activist withdrew demands

M&A Activism

Six activists of the twenty who publicly initiated an activist strategy in June pushed for the sale of the target issuer

13D Digest Nano-cap Activism on the rise? 35 Number of 13Ds filed in June, up from 26 in May 11% 11% Nano-cap Large-cap

9% 75 Number of 13D/As filed in June, down from 76 in May

Nano-caps comprised 11% of activist targets in H1 2014, up from 9% in 2013; Large-caps witnessed a decline in popularity from 11% to 6% over the same period

2013 2014 YTD Activist Insight Online The definitive resource on activist investing

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