Monthly

HALF-YEAR REVIEWMonthly

OLSHAN MACKENZIE MARATHON FROME PARTNERS PARTNERS WOLOSKY

Volume 5 Issue 6 | July 2016

In association with

www.activistinsight.com Editor’s letter

Josh Black, Editor-in-Chief at Activist Insight Monthly.

alf way through the year incredible proportions, given the Our usual features remain. Our already, and what a period shenanigans at Viacom and inter- activist interview is with Mario H for activist investors. group merger proposal between Cibelli, recounting his proxy contest The first six months of 2016 have Tesla and SolarCity. victory over Shutterfly almost a advanced at an astonishing rapidity. year ago and pointing towards the In case anyone missed some of Add in the legal battle at Ashford future path of investors frustrated the big developments, American Hospitality Prime and appraisal at remuneration in technology International Group and Yahoo decision at Dell, and you have the companies. For our campaign entered settlement agreements makings of an incredibly complex in focus, we have Chico’s FAS, that give activists significant, corporate landscape. currently planning to spend $5.9 and in time perhaps decisive, million to repel Barington Capital influence over their future strategic In all of this, activists of all stripes Group’s demand for two board direction, Valeant Pharmaceuticals will play a role. Shareholders and seats. International became, for some management teams will continue weeks, the biggest business story to clash over high stakes and In keeping with our ambition to in the world, and Volkswagen finally contentious issues, but overall there highlight the growing influence got the activists it deserved. is more to be gained from both sides of shareholders and shareholder being fair and flexible where possible. rights on corporations, we are When I asked Paula Loop, Leader of pleased to be enhancing our “The pace of change PwC’s Governance Insights Center, longstanding coverage of short- in the world is whether activists were helping to sellers with the launch of a new and incredible. Companies make the focus of management improved, dedicated platform— are working in a fast- teams too short-term recently, she Activist Insight Shorts. Coming paced environment.” demurred. “Probably not,” she said. shortly after we announced “The pace of change in the world is the impending launch of our incredible. Companies are working vulnerability assessment tool, in a fast-paced environment.” this represents our second major The period covered by this Review development in as many months. has been anything but quiet, That strikes me as accurate. Stay tuned for more information on and the numbers bear out that Companies need to adapt quickly, both products. assertion. More than 460 companies and shareholders want them to. have faced a public demand or Activists may seek to amplify the Small in comparison is the shift governance-related proposal from message of the analyst or institutional underway with this publication. an activist worldwide thus far in investor community, or to explain We’ve renamed it Activist Insight 2016, compared to 637 in the whole that of the company, as with Trian Monthly for greater brand of last year. Partners and General Electric. consistency, and expect to introduce some new features later On top of that, activist short- On to the publication at hand. It’s this year. These are exciting times, sellers have released reports on 96 our great pleasure to be partnering and we look forward to playing companies. These are a growing with Olshan again on this Half- our part in keeping you informed force, now extending well beyond Year Review, and, for the first time, on developments in the world of the well-known Jim Chanos and proxy solicitation firm MacKenzie shareholder activism. Carson Block. Well they might. Partners. They both contribute their Corporate manoeuvring has reached wisdom to these pages. [email protected]

2 Contents

Monthly Activist Insight Monthly, July 2016.

2 Editor’s letter 6 13 Josh Black, Activist Insight 5 Activists counter board inertia Steve Wolosky and Andrew Freedman, Olshan From Wolosky 6 The year so far 9 Dodging takeovers 11 Fighting the good fight An interview with Steve Wolosky and Andrew Freedman from Olshan Frome Wolosky 13 Running man An interview with Mario Cibelli, founder of 22 Marathon Partners 16 2016: The first half in numbers 18 Campaign in focus Barington at Chico’s FAS 20 Activist engagement An interview with Dan Burch, Paul Schulman, and Dave Whissel from MacKenzie Partners 22 News in brief 26 New investments 28 Monthly summary 26

All rights reserved. The entire contents of Activism Monthly PUBLISHED BY: are the Copyright of Activist Insight Limited. No part of Activist Insight Limited this publication may be reproduced without the express 26 York Street, London, W1U 6PZ prior written approval of an authorized member of the +44 (0) 207 129 1314 staff of Activist Insight Limited, and, where permission for online publication is granted, contain a hyperlink to the www.activistinsight.com publication. [email protected] Twitter: @ActivistInsight The information presented herein is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. Save precious time

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   www.activistinsight.com Activists counter board inertia

Olshan Frome Wolosky Partners Steve Wolosky and Andrew Freedman share their perspectives on the state of shareholder activism, the 2016 Proxy Season and trends to watch out for.

istory has shown that Today’s activist investors are caps, the 2016 proxy season has entrenched boards of undertaking exhaustive research, certainly been no slouch. H struggling companies, when presenting incredibly well thought out, left to their own devices, display a detailed white papers and assembling Growth in 2016 was again fueled by remarkable deference to the CEOs world-class teams of advisors and first-time activists and ‘reluctavists’, whom they are tasked to oversee and director candidates. While we are who escalate their involvement with an inability to hold poorly performing seeing some companies and their management when all else fails. management accountable. Actively advisors co-operate with activists Harvest Capital Strategies won two engaged investors are the external upfront to avoid an escalation, there of the three seats up for grabs at counterweight to this inertia, are far too many still that are digging Green Dot, with only eleventh-hour compelling boards to focus on the in and pushing back, or engaging in maneuvering protecting CEO Steve serious issues that are too often appearance only. Streit. Other successful activists this casually dismissed. year include VIEX Capital—winner of two proxy contests—and Engine We keep hearing that public “Being your own Capital, which entered into three companies are acting and thinking activist requires settlement agreements. Later in this like activist investors. But thinking honest self- issue you will read about how the like an activist requires more than assessment to tackle CEO and Chairman of Shutterfly just adopting the low-hanging fruit the tough issues that were both out within a year of of governance changes like proxy are likely to be raised Marathon Partners’ proxy contest in access and majority voting. It requires by an activist.” June 2015. honest self-assessment to tackle the tough issues that are likely to be raised 2016 is also notable as the year by an activist, such as best-in-class Over the past decade, our practice when Starboard’s direct involvement performance, board reconstitution alone has had a hand in changing out at Darden ceased. Since the and executive compensation. We’ve close to 1,000 public company board Starboard-led board takeover in yet to see any company truly be their members (79 so far in 2016). This October 2014, the new board has own activist in this sense. much-needed board refreshment overseen a dramatic operational is resulting in more-engaged turnaround, and Darden’s share Indeed, it would be hard to say that fiduciaries unafraid to ask the tough price is up by around 50%. There Depomed was thinking like an activist questions or spark the lively, robust is perhaps no better example of an when it sought to further suppress debate that has been absent for far activist success story. shareholder rights under the guise too long in many boardrooms. of a Delaware reincorporation or that Shareholder activism is succeeding Ashford Hospitality Prime was acting Some naysayers like Moody’s for the most part in creating stronger, like an activist when it disenfranchised claimed activism would decline in more sustainable and focused shareholders over immaterial 2016, but that hasn’t been the case. companies, better governance and, nomination technicalities and The number of campaigns we have ultimately, increased long-term value implemented a massive termination advised on has risen more than 20% for shareholders. fee “proxy penalty” to entrench itself from our 2015 numbers. While it may without any legitimate business not live up to 2014 and 2015 in terms reason. of the big names and huge market-

5 The year so far

A specter looms over activist investors, as volatile markets, global uncertainty and reduced funding clash with cheap and easy debt, continuing M&A and a secular acceptance of the greater role demanded by shareholders.

Against that backdrop, little has changed outwardly. The number of companies publicly subjected to activist demands rose again in the first half of 2016, climbing 17% worldwide to 473. In the US, growth was slower, from 278 companies in the first half of 2015, to 306 companies year-to-date. In parts of Europe and Asia, the growth was much faster; the UK matching its 2012 peak and Continental Europe surpassing last year’s high. Countries such as Japan and Singapore have seen surges of activity, even while the likes of Hong Kong and South Korea fell back slightly. Activism is here to stay. “Of all activist demands worldwide in the first half of 2016, 13% related to M&A, compared to 19% in the whole of 2015.”

Mixed signals Value’s Head of Research, Peter Number of companies Feld, told a conference that there publicly subjected to That is hardly the full story, however. would continue to be plenty for activist demands by half- Primary focus activists—those that activists to do in the years ahead, and full-years dedicate almost all of their portfolio but that it was common for event- to companies in need of shaking- driven activism to peak and then fall up—were much less busy in the first away. 637 half of 2016. Worldwide, those funds 548 subjected 75 companies to public That prediction is already starting 473 demands in the first half of 2016, to play out. Of all activist demands 405 against 81 in the first half of last year, worldwide in the first half of 2016, 338 a decline of 7%. In the US alone, the 13% related to M&A, compared to same category of funds targeted 19% in the whole of 2015 and 15% 20% fewer companies. in the first six months of last year. David Rosewater, Morgan Stanley’s And yet, the number of such funds activism defense lead, told the same making a demand worldwide audience that the “junior varsity” of 2014 2015 2016 grew. In first halves of 2013, 2014 activists risked calling for companies Full-year and 2015, active primary focus to sell themselves when there were Half-year activists averaged 36. This year no obvious buyers. “That’s what they numbered 45. Since there is you call catching a falling knife,” he little evidence that the second half added. of 2015 was busier than usual, the 30 data is suggestive that the problem Not quite no contest is not a lack of activists, but a lack of Board seats gained by opportunities. One arena where some claim activism activists at US companies is dropping off is proxy contests. In following proxy contests By contrast, the number of active the US, 20 contests have gone to a occasional activists, who launch vote this year, compared to 23 in the resolved in H1 2016 campaigns less than once a year, whole of 2015 and 19 in 2014. Results has more-than doubled since 2014, have been mixed, however. Including to 175. Partial focus activists, which another 14 situations where proxies Number of companies may run campaigns yearly but were filed but a settlement was publicly targeted by allocate most of their portfolio to eventually reached or the activist activist short-sellers other investments, have remained withdrew, activists won 30 board remarkably steady in recent years. seats (out of 98 sought). In resolved Public demands were made by 58 contests, activists have been left 96 such funds in the first half of 2016. empty handed 15-times.

69 71 Uneventful In the absence of a contest the size of Darden Restaurants or DuPont, Many have predicted a decline in many contests have gone relatively activism as opportunities for a quick unnoticed, with the exceptions of return dry up, thanks largely to the first-time activist Harvest Capital slowing pace of M&A activity and Strategies, which won two seats H1 2014 H1 2015 H1 2016 opposition to soaring levels of share at Green Dot and narrowly failed to repurchases. Last month, Starboard unseat CEO Steve Streit, and Sessa

7 “While plenty of projects remain for activists, a lack of additional funding may handicap their ambitions.”

Partners’ bitterly fought attack on Falling commodity prices have had Maryland REIT, Ashford Hospitality an unmistakable impact on activism, Sector breakdown of Prime—a situation that looked however. Demands made in the companies publicly hopeless for the activist some weeks basic materials sector accounted subjected to activist ago, but may yet provide a result. for 14% of the total in the first half demands in H1 2016 of 2016, down from 18% in previous That is not to say activists have years. That affected Canada more 2.4% 0.4% Utilities Conglomerates forgone large-cap companies. Fully than any other country, with the 5.8% 22% of public activist demands number of companies targeted Industrial Goods worldwide were at companies with down 17% (another resource-rich a market-capitalization of more than country, Australia, recorded only 8.0% Consumer Goods $10 billion, the highest since 2010. a small increase in activism on the 24.4% As a share of the total, companies same measure). One to watch for Financial with a market-cap of less than $250 the second half of the year may 8.0% Healthcare million fell from 43% in 2015, to 37% be Performance Sports Group, 13.4% in the first half of 2016. however, where Graeme Roustan Basic Materials 23.8% is mounting a campaign against the Services Outlook leadership and advocating a different 13.8% business strategy. Technology What happens next is unclear, with a major economic shock There seems destined to be less possible following the UK’s decision activism in the technology sector, to leave the European Union. where for some time there has been Shares dropped sharply after concern that valuations may be too $180bn the vote, potentially creating new high. The share of all demands that opportunities, but it is unclear what were leveled at tech firms fell from Global total of assets the long-term implications will be. 18% in 2014 to 15% last year, and managed by funds or German industrials, such as Cevian again in the first half of 2016 to less investors with a primary Capital holdings ThyssenKrupp than 11%. Thus far, activists have fled and Bilfinger Berger, were hit hard uncertain conditions into financials focus on activist investing in trading, while UK-based exporter (just shy of a quarter of all demands Rolls-Royce Holdings—which just in 2016 so far), and services (not far months ago welcomed ValueAct behind). Number of companies Capital’s Brad Singer onto its publicly subjected to board—is seen to have benefited While plenty of projects remain for demands by primary from a devaluation of the pound. activists, a lack of additional funding focused activists may handicap their ambitions. Activism in Asia has boomed in Primary focus US-based activist recent years against the background funds have seen their assets reduced 138 138 of a buoyant Japanese stockmarket, by around $10 billion thanks to and continues to grow strongly outflows and depreciation, according despite the Nikkei’s year-to-date to Activist Insight data, bringing the 75 losses. Activist Insight data show the total down to $146 billion. That is number of companies to face public still a sizeable sum—more than 57% demands rose 65% to 33 in the first higher than the total in 2012. Whether half of this year. In the whole of 2015, or not there is room to grow, activism 2014 2015 H1 2016 36 companies were targeted. will remain a force.

8 Dodging takeovers

The M&A frenzy has continued into 2016. Mergers are a short-seller’s nightmare, but for activist short-sellers, having a bet wrecked by an acquisition is a rare event. And there are precautions they can take.

hen SolarCity revealed that adding that heavily-shorted stocks However, a misrepresentation does it had received a takeover were often acquired. not necessarily mean that a company W proposal from Tesla is worthless, and a potential buyer Motors at a premium of up to 30%, the Speaking with Activist Insight Monthly, with access to its books and records last available data showed that more short-seller Richard Pearson might decide to acquire it. than 40% of the target company’s commented, “You should keep your floating shares were sold short. Jim position much smaller than you Pearson told Activist Insight that Chanos’ Kynikos Associates and wanted it to be.” Equally important, there is not a single red flag that can Andrew Left’s Citron Research were shorts should take security measures help understanding if a company is among the bears bruised by the such as buying call options—even a potential target—but being wary of electric car maker’s bid. though these contracts come at a sectors with strong M&A activity may price. help. For investors betting against stocks, takeovers can reverse gains or Being a short-seller often requires inflict major losses. However, data “You might be right a contrarian mindset, but putting gathered by Activist Insight show about your fraud oneself into the shoes of potential that acquisitions of companies facing thesis, but [the acquirers may be helpful. Soueidan short attacks from activists are company] can still suggests “ask[ing] yourself whether infrequent. be taken private.” there is value in the company’s assets.” Between the beginning of 2015 and June 30 2016, 221 companies have Sometimes, companies seem to been the target of short-reports or Evan Barnett, an analyst working for have terrible prospects—and even media campaigns waged by bearish pioneer activist short-seller Manuel fraudulent managers—but a potential investors, only three of which signed Asensio, said to Activist Insight that buyer might see intangible value in definitive merger agreements in the they “never had an incident with them that could help it acquire a first half of this year, Activist Insight targets getting acquired.” The reason? competitive advantage. data reveal. They focus on companies which they believe have committed fraud. Often, activists decide to fully Going public with a campaign against embrace the risk of a merger, betting a company could dissuade some Soueidan agrees in saying that frauds against rumoured transactions—and potential buyers, but Maj Soueidan, a are unlikely to be acquired, but there for research outfit The Street Sweeper co-founder at GeoInvesting—a long- are exceptions, especially among this is a frequent strategy. biased investment firm which often US-listed Chinese companies, one of takes an activist approach to its short the targets favored by activist short- Ultimately, all the research in the positions—warns that publishing a sellers. “You might be right about world could never help short- report does not keep the risk of a your fraud thesis, but they can still be sellers completely eliminate the risk takeover at bay. taken private,” he said. of a takeover, for new thinking is often at the mercy of brute force “Actually, it may help it, because it Chinese companies are often in the in short-selling. As Soueidan puts may result in the company becoming crosshairs of investors convinced that it, sometimes “smart money got it cheap,” he told Activist Insight, they have misrepresented their data. wrong.”

9 Ready for the drop?

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   www.activistinsight.com Fighting the good fight

The co-Heads of Olshan Frome Wolosky’s Activist & Equity Investment Group, Steve Wolosky and Andrew Freedman, discuss the current state of activist investing.

Where is the growth in activism coming world are active in lots of situations, but Have the tactics got dirtier this year? from? in most cases are not having to take their situations to a vote. Companies SW: I think there are certain advisers, AF: It’s really a mix of factors. The real are sitting down with them, having whether legal, PR, or investment growth is coming from new entrants dialogue, engaging and discussing banking, that are more willing to advise who are fueling the recent wave of fundamental issues. Citrix is a perfect their clients to take it to a vote and to small- to mid-cap activism. Previously example – [Elliott’s portfolio manager] be aggressive in terms of attacking passive investors continue to show Jesse Cohn was welcomed to the the activist, their slate, and track a willingness to flirt with the activist board, the company made a number record. You also have others that are toolkit as a last resort. First-time activist of improvements and all shareholders more constructive that say let’s see if Harvest Capital and its campaign at have benefitted. The existing directors we can work it out, and only take it to Green Dot is such an example. were obviously open-minded to doing a vote if the sides can’t agree. Who the right thing. the company’s advisers are makes a SW: Traditional long investors are huge difference in the process. adding the use of activism to their toolbox. Very smart, multi-billion funds AF: No doubt we’ve seen more in the who are not short-term but have been “No doubt we’ve way of ‘down and dirty’ hostilities very disappointed with a company’s seen more in the from companies this year than in the performance over time are turning to way of ‘down and past few. It never really behoves a activist tools in certain situations. They dirty’ hostilities from company to smear an activist or its don’t want to be perceived as activists, companies this year slate. If they’re trying to discourage but they also don’t want to be taken than in the past highly qualified candidates from advantage of and have decided to few. It never really joining activist slates, it’s not working. make a stand. behoves a company Such tactics backfired this year and to smear an activist incense shareholders. AF: We’ve also been approached this or its slate.” year by a number of founding families Do you think changes to companies’ and ex-CEOs who still have a large bylaws have made for a more stake in a company and an emotional contentious process, given a few attachment. While activism has AF: It’s not that the brand-name activists have been stopped from traditionally been used by investment activists are less busy, it’s just that presenting slates this year? firms and hedge funds, there’s nothing they’re able to get more done behind to stop these sort of shareholder the scenes of late. Small- to mid- SW: I don’t think there have been a constituents from using an activist cap activism, particularly where there lot of rejections. The Sessa v Ashford strategy to get their foot back in the are votes of no-confidence on CEOs Hospitality case is an outlier in terms door. We’ve been approached by two or fundamental issues at stake, and of a slate being ruled out. Bylaws have such types in recent weeks. first-time activists where companies become more complex, in many cases set out to test their resolve, are more as an information-gathering exercise. Have the largest activist firms become likely to go to a vote these days. From Some nomination letters can be up less busy recently? our point of view, we think that it’s to 300 or 400 pages when onerous companies wanting to see whether questionnaires are required. That SW: It’s playing out differently. The these new entrants are willing to go to makes it a more expensive process. Starboards, Elliotts and JANAs of the the mat.

11 “We have severe concerns about the good faith of companies which use their bylaws to add unnecessary levels of disclosure.”

As the cost of actually running a There’s been a lot of regulatory You’ve been vocal in saying law firms proxy contest has become cheaper pressure on activists this year. How do should only advise one side in activism. in the modern era, one way to make you expect that to play out? Why so? it more expensive is to make the nomination process more onerous. SW: I think to a certain extent that AF: It’s always been our view, We have severe concerns about the will depend on who is President of practically from day one, that the legal good faith of companies which use the United States and who controls advisers in this space have to choose their bylaws to add unnecessary Congress [come November’s election]. one side or the other. Given all we have levels of disclosure, especially when Companies and certain advisers will learned about how activist investors they’re probably twice the size of the continue to put pressure on reducing think and behave, could we launch a questionnaires they ask of their own the 13D filing window from its current highly successful corporate defense nominees. ten days and try to curb the use of practice? Absolutely. But you’re never certain derivatives to get around HSR going to see that happen. When you AF: A board that tries to disenfranchise filing requirements. But on something advise on the defense side, you are its shareholders based on nomination as democratic and practical as the not just adverse to the activist at- technicalities is playing with fire. It may universal ballot, I believe you’ll hear the hand. Advising a company to amend buy them some time, but it never ends hollow sound of companies saying we bylaws to suppress shareholder well for those entrenched directors in can’t spell the world ‘universal’. rights, adopting “proxy penalty” type the long run. provisions, requiring excessively Do activists have the answers to win onerous nominee questionnaires, What did you make of the Ashford those political battles? rejecting nominations on account of verdict? Is it likely to have widespread immaterial technicalities – these types ramifications? SW: At the end of the day, I think these of actions are an affront to all activist are smokescreen issues. Our clients investors and shareholders alike. It SW: It’s still on appeal, and we’ll see are generally shareholders who have would be a tremendous disservice to what happens, but my view is that it’s gone into a stock with a commitment our longstanding clients for us to ever really an outlier. It’s Maryland, which to unlock value and their ability to do advise any company as such. I just is probably the most difficult and that won’t be affected by a shorter don’t see how you can reconcile those unfriendly state for activists. Many of disclosure window. positions. the REITs and BDCs with exorbitant management agreements and change AF: Anti-activist regulation, as SW: We as a firm add substantial value of control payments worth hundreds has been proposed, threatens to strategizing or testing how a process of millions of dollars coincidentally are undermine the vastly important role might play out. Activists have a lot of incorporated in Maryland. that activist investors play in ensuring proprietary information in their models that the checks and balances system and strategy – including how they AF: Entrenched boards like Ashford so essential to proper corporate execute from an operational standpoint should think long and hard before governance functions properly. if they’re bottoms-up activists, the taking actions that can only be Shareholder activism has had an qualities they look for in directors, described as disenfranchising their overwhelmingly positive influence how they feel institutional investors shareholders. That’s been played in terms of reinvigorating otherwise might react – and do you really want to out before, and it’s never behoved complacent, underperforming public share that with someone who might be the company well to shareholders, company boards and improving working against you or one of the other proxy advisory firms or institutional corporate governance. We’re happy well-known activists in the field? investors. I just don’t think Ashford will to see a group like Circa highlighting have the far-reaching consequences these virtues of engaged investing some are suggesting. and serving as a counterweight to the activist naysayers.

12 Running man

Marathon Partners sent shivers through Silicon Valley with a proxy fight focused on executive pay. A year on, it says the company has changed.

he venture capitalist-backed and took a plain vanilla options package sharing our thoughts and opinions with CEOs of California’s Silicon should speak loudly towards the companies. We’ve had only a handful TValley are better known for opportunity. It will take hard work, focus of situations over the last ten years creating value for shareholders than and strong execution but we’ve helped where we’ve had major disagreements listening to them. Dual class share set Shutterfly up for a winning run again with management teams,” he says. structures, classified boards and and this is very consistent with our long- “Shutterfly is the first one where we had exorbitant stock-based compensation term investment strategy.” to resort to a proxy contest to resolve are still commonplace, to the extent the situation.” that few worry greatly about the activist investors shaking up their old, slower Although the near-$300 million fund is predecessors. “Our goal was to get a generalist in its sector focus, with a the company to a place preference for stocks whose market- That impression changed last year, where it could begin to capitalization is below $5 billion, some of however, with photo-products company prosper again... We’ve Marathon’s biggest winners have been Shutterfly. Having flirted with the helped set Shutterfly internet companies such as Netflix and prospect of losing its annual advisory up for a winning run Xoom, the payments start-up acquired “Say on Pay” vote, the company found again, and this is very by PayPal last year. New York hedge fund Marathon consistent with our Partners willing to make the issue central long-term investment The contradiction of backing highly to a proxy fight. In June 2015, Marathon strategy.” innovative companies, while at the same won two of the three board seats it was time considering activist campaigns is seeking in its first ever proxy fight. a striking one, but Cibelli stresses that Endurance over distance many companies have a life-cycle that For a fund called Marathon, change makes the importance of considering has occurred at a sprinter’s pace. Prior to the fight, Marathon was barely shareholder value greater as growth Marathon’s founder, Mario Cibelli may be seen in the bracket of investors who slows. “It’s natural for investors to expect off the Shutterfly board and the stock up regularly take to the airwaves to shake- that, as growth slows, maximizing and down with little overall change, but up companies. “Activism is a last resort,” profits and efficiency of capital allocation the company has parted ways with both Cibelli says. “We’re not an activist fund, becomes more of a focus,” he argues. its CEO and Chairman, implemented a but we can act as one if need be.” new compensation package and hired Pay for performance former Amazon UK boss Chris North to That said, the 19-year old fund has the run the business. right set-up. It eschews quarterly money That was part of the problem with for one-, two- and three-year classes, Shutterfly, where profits had actually Speaking with Activist Insight Monthly, offering lower fees to entice investors shrunk in recent years as overheads Cibelli says Marathon has accomplished who are typically wary of locking up soared, but then-CEO Jeff Housenbold “every single goal” it set out to achieve, capital. had been awarded a new compensation making cross-country flights and package, supposedly to bring him up to conference calls superfluous. “Our According to Cibelli, the patience of the level of peers in the industry. Cibelli goal was to get the company to a place Marathon’s investors allows it to clear says the problem was exacerbated where it could begin to prosper again,” one of the many hurdles to taking an by the compensation policy tying he says. “That Chris North came over activist stance. “We’re not shy about pay to adjusted EBITDA (earnings

13 “We’re not shy about sharing our thoughts and opinions with companies. We’ve had only a handful of situations over the last ten years where we’ve had major disagreements with management teams.”

three-quarters of investors in December. “Shutterfly was While stock-based compensation is still, Marathon Partners at a glance buying back shares as Marathon said at the time of that in the open market vote, a critical aspect of pay in Silicon Headquarters US for cash, and insiders Valley, target compensation for the CEO were selling shares, will fall from the $17 million before the Founded 1997 for cash. Is there any 2015 annual meeting to an average of Level of activism focus Occasional doubt that stock- around $7 million per year, and stock will Companies subjected to public 2 based compensation be awarded as options, to incentivize a demands (Jan ‘10 - Jun ‘16) should be viewed higher stock price, rather than on the Assets under management $277mn as a real cost by controversial adjusted EBITDA formula. boards?” With Marathon’s role in the turnaround Where Marathon is invested all but complete and news of private before income, tax, depreciation equity interest leaked to shareholders Basic Materials (0.7%) Consumer Goods (2.0%) and amortization), which was easily by an unknown party earlier this year, Financial (5.9%) manipulated. Shutterfly is still at a crossroads. Industrial Goods (9.4%) “Public boards can hedge their bets Cibelli is confident, however, that against picking a single metric to the campaign won’t be the last of its incentivize management. They can kind. “Stock-based compensation use multiple metrics including some may continue to be a touchstone Services (60.1%) that might weigh returns on equity and for controversy and proxy fights,” he Technology (21.9%) GAAP numbers,” Cibelli explains. “But says. “It’s a real expense that is often if they go all-in on a single metric, boy ignored by tech-focused companies— do they have to think hard about that as I pointed out repeatedly to some, metric to make sure it doesn’t create Shutterfly was buying back shares in the distortions in incentives and encourage open market for cash, and insiders were Chart above based on values of poor decision making.” selling shares, for cash. Is there any investments on Q1, 2016 13F filing doubt that stock-based compensation After Shutterfly scraped through its should be viewed as a real cost by 2014 compensation vote with just 50.1% boards?” 12 month Shutterfly share price support (it would fall to 22% the following year), Marathon started to ramp up the Had the compensation issues not run 50 pressure. It nominated three directors, so deep, Shutterfly might have gone meaning it went up against Housenbold untargeted. Whether the activist has himself, and rejected a settlement to made shareholders better off remains

put Cibelli on the board with another, to be proven, but Cibelli is confident 40 mutually agreeable candidate. That Marathon made the right decision Share price ($) decision proved worthwhile when the getting involved. “Pay was the seminal activist picked up two seats for its own issue—we believed good things had the

choices—Cibelli and venture capitalist potential to start flowing once the right 30 Jun ‘15 Dec ‘15 Jun ‘16 Thomas Hughes—although Housenbold incentive compensation plan was in survived until the end of the year. place. I think the majority of the board For more information on Marathon came to understand this dynamic after Partners and over 1,300 other activists, A new incentive compensation plan for we became involved.” please visit www.activistinsight.com. Shutterfly employees was approved by

14 Locate the targets

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   www.activistinsight.com 2016: the first half in numbers

A wider spread

Activism continued to be most frequent in North America, but both Europe and Asia have seen increases in the number 2 of companies targeted. Here, we summarize the number of 4 companies publicly targeted by activists by region, and pick 3 25 out a few key statistics from this year’s action. 7 2 2 5 4 Spotlight on Canada

H1 2015: 36 6 H1 2016: 30

9 10 30 7 306 Basic Materials 5 12 Financial 4 3 Services 3 2 2 1 2 Industrial Goods 2 1 5 Consumer Goods 1 Technology

Healthcare 1 51+ companies Utilities 11-50 companies 30 6-10 companies 3 2-5 companies Despite a fall in the total number of Canadian companies 1 company targeted in the first half of the year, basic materials companies continue to dominate activism in Canada, with a handful of REITs and investment trusts besides.

Spotlight on US

H1 2015: 278 28 H1 2016: 306 23.0% 23.0% Nano-Cap Large-Cap

Such is the spread of activists in the US that every 15.4% market-capitalization category is almost equally Micro-Cap 22.3% Mid-Cap subjected to public demands. 16.4% Small-Cap

N.B. 1. All data exclude activist short positions 16 N.B. 2. All percentages are given to one decimal place, and may cause rounding errors N.B. 3. YTD figures as of 30/06/2016 unless otherwise specified 0.9% Spotlight on Europe Other 5.7% Business Strategy H1 2015: 37 19 6.6% H1 2016: 56 Other Governance 7.6% Remuneration

Board-related activism dominates in Europe, with 9.4% 50.9% Balance Sheet Board-related M&A some way behind. The structure of requisition rights—which often require incumbent directors to be 18.9% removed, may account for the slightly higher level of M&A-related board-related demands.

Spotlight on Asia

H1 2015: 20 13 H1 2016: 33

30

306 5 12 16 3 Non-Asia-based 21 Asia-based 2 2 1 5

30 3 A little-noticed trend has been the rise of home-grown activism in Asia. Such funds make up more than half of those making public demands of companies so far in 2016.

11 Spotlight on Australia

H1 2015: 27 3 8 8 H1 2016: 30 7 6 6 6

Given Australia’s proxy season starts later in the year, 4 4 a surge in companies facing public activist demands 3 3 is hardly surprising. The start of 2016 has been busy, 2 suggesting the summer may see even more activity than usual.

July 2015 April 2016May 2016June 2016 August 2015 March 2016 October 2015 JanuaryFebruary 2016 2016 17 September 2015NovemberDecember 2015 2015 Barington Capital at Chico’s FAS

A retailer gets its second activist in quick succession. Will shareholders give a new CEO time to breathe?

hen womenswear retailer Chico’s FAS Chico’s FAS hired Shelley W Broader to be its next CEO Industry Apparel Stores in October last year, she knew she would Sector Services have to deal with an activist investor. HQ Fort Myers, FL, US Blue Harbour Group, which eschews proxy fights for more collaborative Market cap $1,420 mn* working practices, had been in the stock Exchange NYSE since 2013, albeit without challenging Ticker CHS management in public. Broader’s main * as of June 30, 2016 concern was getting agreement on a new strategy, after her predecessor David Dyer quit following unsuccessful entirely written off, was sold in January. Barington’s main critique. It argues talks with a private equity firm. Barington supports those moves and Chico’s is too centralized, leading to believes it prompted some of them, bloated overheads and inefficiencies, In fact, Broader had an activist problem adding that it could save roughly $75 such as the Merchant Committee, a she didn’t know about. Blue Harbour million more, largely in marketing and board-level mechanism for reviewing Group sold the last of its shares in the headquarter overheads. Both sides merchandise strategy. Chico’s says the second quarter of 2016, Activist Insight agree more share repurchases are in committee, which met twice last year, has learned, but Barington Capital Group order, given the stock’s low multiple. enables Presidents of the company’s had started building a position and three brands to take additional input working on its plan for reforming Chico’s. Barington also wants to expand the from industry experts “as needed” but In March this year—just three months after company’s Soma range of lingerie stores Barington is not satisfied. Broader’s first day on the job—Barington by adding 200-300 new outlets, telling made contact with management, and Activist Insight Monthly that the chain Ultimately, given how close the two sides’ less than three months after that came is being outperformed by Victoria’s positions are on the company’s strategy, the announcement that it would seek Secret, which has almost 50 stores for the proxy fight may come down to the two seats on the board at July’s annual each Soma one, and that it lacks faith quality of the nominees. Barington’s meeting. in the current board’s ability to assess slate consists of Mitarotonda and the opportunity. That plan drew one Janet Grove—touted as a merchandise Since the announcement of Broader’s of management’s sharpest attacks, expert—a former Vice-Chair of Macy’s hire at the end of October 2016, the market saying investors didn’t want a “bricks who now sits on several boards, including has been unkind, sending shares down and mortar” strategy, and that online Germany’s Karstadt Department Stores, 19%. Yet the former head of Walmart’s expansion was the way forward (Chico’s bankrupt teen retailer Aéropostale, and EMEA group has been busy, and while plans to close around 150 stores, the ClubCorp, the golf course operator the stock is still down since Broader’s company says). Barington has doubled- being shorted by Kerrisdale Capital. start date, a modest recovery began with down on its claim; Jim Mitarotonda, the the February earnings announcement. activist’s founder and CEO, even says Hoping to take Barington by Already, the company has announced Soma could be spun-off a few years surprise, the company added two $60-85 million of cost reductions and down the line. new directors ahead of the vote, said it will declassify its board, subject namely Walmart US CEO and Darden to a shareholder vote. Boston Proper, The debate over digital versus bricks Restaurants director William Simon a disastrous 2011 acquisition almost and mortar expansion has obscured and Bonnie Brooks, Vice-Chair of

18 “Given how close the two sides’ positions are on strategy, the proxy fight may come down to the quality of the nominees.”

Hudson’s Bay. Broader and retired its corner. According to Barington, Insight data indicates the amount is former-McDonalds’ executive Janice Chico’s Chairman David Walker indeed high, putting the median over Fields make up the slate. rejected a settlement, lest changes be 2014 and 2015 at $2.1 million. “That interpreted as a lack of support in the appears to be the mentality of the Already, the battle is a fierce one. new CEO. A company spokesman told Chico’s board and something we want Barington is accusing its first target, Activist Insight Monthly that Chico’s to change,” Mitarotonda says. Fields, of lacking retail experience would not comment on individual and presiding over growing conversations with shareholders. inefficiencies, and says the other, Brooks, is conflicted. Barington calls Having quickly decided the board would Barington’s last proxy fight: the company’s protestations that its be uncooperative, Barington went on Eastern Co, 2015 customers spend so little at Hudson’s the attack, highlighting health insurance Bay that the department store doesn’t for directors and their dependents as In Barington’s camp even feature on its competitor analysis, evidence of entrenchment. “Providing (nominees averaged 63%) “extremely disingenuous” and says health insurance does not facilitate a Investor Times voted dissident card Chico’s own annual report cites shareholder-focused mindset in the BlackRock 38% domestic and international department boardroom,” Mitarotonda says. “Do Vanguard 21% stores as rivals. you think Warren Buffett provides CalPERS 45% health insurance for directors at Neither activist nor management looks Berkshire Hathaway?” ready to settle, raising the stakes and In management’s camp increasing the tempo of the debate. Then there is the $5.9 million war chest Investor Times voted dissident card The size of Barington’s stake—1.5%, Chico’s has set aside for its defense—a Norges 36% with much of that in options—and the cost Mitarotonda condemns as Lazard 48% timing, given Broader’s recent hiring, “outrageous and an irresponsible waste BNY Mellon 31% has made Chico’s determined to fight of shareholder resources.” Activist

Source: Proxy Insight

Chico’s FAS 12 month share price performance

02 November, 2015 24 May, 2016 Chico’s FAS’ President & Barington Capital announces 20000000 CEO, David Dyler, will resign that it is to put forward an 18 from his roles in December alternative slate of two directors Fundamentals

16000000 25 February, 2016 16 Chico’s FAS reports a better- 52 week high $17.0 9 * than-expected loss in its Q4 Share price results, sending share prices 52 week low $9.61 * 12000000 up almost 15% 14

Volume Share price $10.71 * 8000000 12 Total Shareholder 24 November, 2015 -33.9% * Chico’s FAS reports its third Return (12 months) quarter earnings, with net 16 June, 2016 4000000 sales down 3.7% compared Chico’s FAS praises the 10 to 2014’s third quarter results progress of the company under its CEO, Shelley * accurate as of June 30, 2016 Broader 0 8 01 July 2015 01 November 2015 01 March 2016 01 July 2016 Source: Capital IQ, CSI data.

Volume Closing share price ($) Activist engagement

A discussion on preparing for an activism situation from an issuer perspective with Dan Burch, Paul Schulman, and Dave Whissel from MacKenzie Partners.

2015 was a record year for settlements, What are some of the steps that What role does corporate governance and we are on pace to exceed that you recommend companies take in play in proxy contests? What are some record in 2016. What are some of the responding to an activist’s involvement? of the key corporate governance issues reasons a company might choose not of recent years? to settle and instead pursue a proxy Shareholder engagement is critical in contest? What are the advantages of responding to and defending against It depends on the campaign. Some settling early? an activist. We counsel our clients to activists genuinely appreciate good have meaningful ongoing dialogue with governance and see it as a lever to pull Ultimately, a board’s responsibility is shareholders, not just during proxy to unlock value. For others, it’s just a to do what’s best for shareholders, season. Being transparent, candid, and means to an end, and a way to win the and sometimes a quick resolution involving independent directors when support of some index funds and other is the appropriate path to take. But appropriate will lay the groundwork for governance-focused shareholders and for companies that have a defensible support. For the most part, there’s no advisors. Regardless of the activist, our strategic plan and a path to create value, such thing as engaging too early or too message to our clients is: if your corporate are well-prepared and have established often. That engagement should extend to governance structure goes against the a strong relationship and credibility with the activist itself as well. In today’s world, prevailing norm, you need to explain why their shareholders through transparency it is a big mistake to underestimate and to your shareholders. Proxy access has and responsiveness, settlement may not dismiss the concerns of activists without obviously been a hot topic recently, but be the best path. Taking a proxy contest at least speaking with them first. hasn’t really been an issue in any of the to a vote may be the right decision and campaigns we’ve been involved in. On communicates a strong message to Whether or not there’s an activist the other hand, executive compensation shareholders. We have heard criticism involved, companies should be prepared is becoming increasingly important, and from some shareholders who would as if there will be an activist involved. we’ve seen many activists raise detailed rather have the ability to vote on the This requires thoughtful and regular self- compensation analysis as an issue in a construction of the board than abdicate assessment, paying particular attention campaign. That would have been almost that process to a negotiation between to board composition, refreshment, and unheard of even a few years ago. the company and one shareholder. ways to improve performance. How important is shareholder However, proxy contests are expensive We also often advise our clients engagement during proxy contests? and take management’s focus away to consider corporate governance What is your typical strategy for dealing from running the core business. enhancements to the extent that they are with shareholders? Settling provides certainty to a process consistent with shareholder feedback. that can be very unpredictable, and In many of these campaigns, there is Direct shareholder engagement is always it is also generally accompanied by some “low-hanging fruit” – governance important, but becomes even more a standstill agreement, which, while improvements that can be made quickly critical ahead of important meetings. In important, may still not provide comfort and easily and at minimal cost. Not only some cases, effective engagement can that the company won’t have to face are these improvements important for mean the difference between winning the same issue again next year or the their own sake, but they can also provide and losing a campaign. We recognize following year. If the board determines evidence of a company’s willingness that every shareholder is different, and that a dissident’s nominees are highly to listen to shareholders and respond we usually advise our clients to adapt capable and would add value, or that positively. However, assessing and making the focus of that engagement to each its proposed changes are viable, then it the changes is better when done on a “clear investor. For example, while some should consider settling. day” before the activist comes knocking. shareholders may want to talk about

20 “Sometimes a little tension on the board is a good thing. Shareholders don’t like it when directors get too comfortable.”

how management’s compensation plan that’s not always an option. But even if After surfacing as a shareholder option is aligned with long-term strategic goals, performance is mediocre or even poor, in campaigns at DuPont and Shutterfly another shareholder might want to focus it can be very persuasive if a company is last year, we haven’t seen much mention exclusively on the core business. We able to recognize that changes have to of universal ballots yet in 2016. Why is help our clients understand when and be made, creates a compelling strategic that? Is the universal ballot ever likely to how to engage, which issues matter to plan, and executes against this plan. become widely adopted? which shareholders, and how they are And regardless of the content of the likely to vote. message, it should be communicated The universal ballot has clear benefits to through direct one-on-one engagement shareholders in the sense that it makes What are you advising your clients about with shareholders whenever possible. it much easier for them to split their the role index funds are expected to play votes among different slates than a legal in governance and strategy discussions? On the other hand, the argument that the proxy. But it also benefits companies activist will cause “disruption” is generally more than many of them realize. By Traditionally, index funds were relatively not very well received. Sometimes a little using a universal proxy, what you’re passive on the issues of strategy and tension on the board can be seen as really doing is enabling shareholders business. That’s certainly changing. More a good thing; shareholders don’t like it to vote for some change without taking and more, index funds are becoming when directors get too comfortable. the drastic action of voting on the “active” owners, and are engaging on dissident card and potentially depriving issues beyond corporate governance How have your strategies evolved as management nominees of votes. By and executive compensation. There is shareholder activism has become more empowering shareholders, you give a lot of sophisticated financial analysis prominent? them greater flexibility to vote for at least done at the index funds, and their teams some of your nominees. are happy to talk about capital allocation Since MacKenzie was founded more and long-term strategy. We counsel our than 25 years ago, the paradigm It seemed to be gaining some clients to be mindful of this shift, and to has shifted from “activism defense” momentum last year, but calls for its prepare accordingly. Since index funds to “activism preparedness,” and the widespread adoption appear to be by definition are the ultimate long-term strategies have become much more dying down. One of the primary issues is holders, companies need to be able to sophisticated. For example, today, you that, because it’s difficult to predict how communicate their long-term vision to typically can’t just implement a poison pill a universal ballot will work in practice, these investors. and rely on a staggered board to keep an no company wants to be a guinea pig. activist or hostile bidder at bay. You really The timing wasn’t right in DuPont and Which arguments tend to resonate most need to engage the activist and develop Shutterfly, but they certainly sparked with shareholders? Which arguments a holistic response strategy. That a debate, and we expect to see the fall flat? might involve making certain corporate universal ballot more widely used within governance enhancements, beginning the next few years. The best argument against activism an investor outreach campaign, or is strong performance. Unfortunately, returning capital to shareholders. @Mackenzie_Ptnrs

About MacKenzie Partners We’re confident that our team approach is the right solution in today’s complex and changing market. Our skill, experience, and dedication to our clients are the MacKenzie Partners is a full-service proxy solicitation, investor relations and reasons that our professionals have become trusted advisors to investors, boards corporate governance consulting firm specializing in contested solicitations and and management teams. M&A-related transactions. 105 Madison Avenue, 17th Floor We focus on serving our clients in their extraordinary transactions, and have been New York, NY 10016 involved in many of the largest and most significant mergers, tender offers, and +1 (212) 929-5500 proxy contests over nearly three decades. mackenziepartners.com News in brief

A round-up of June’s developments in activist investing.

North America Boingo Wireless settled a proxy hire of David Callaway as its new CEO, contest with Ides Capital after and corporate governance changes. Mondelez made a reported $23 billion Legion Partners suggested two offer for Hershey’s, a Pennsylvania- new directors. Boingo also appointed Banking activists faced glum news in based confectioner. The offer was one new board member of its own June. Financial Institutions won quickly rejected, with Hershey’s choosing in the deal, which sees the a proxy fight against banking sector saying there was “no basis for further activists tied into a two-year standstill. activist Clover Partners. FBR & discussion.” Ides has also nominated directors at Co also defeated Voce Capital CSS Industries. Management, but Lawrence The Brokaw Act, a bill designed to regulate Seidman was granted a board seat at the activities of activist shareholders, A Delaware judge ruled that a MSB Financial. was delayed after a Senate committee management buyout of Dell in 2013 opposed efforts to add the provisions did not pay fair value, awarding several Epiq Systems was forced to settled to an appropriations process lest they funds exercising their appraisal rights with Villere St Dennis and pay the slow down important budget measures. a 21% premium. T. Rowe Price, which dissident $3.5 million in costs after a Senator Tammy Baldwin, one of the bill’s mistakenly voted for the deal when bitterly fought proxy battle. The activist sponsors, was “shocked” the reforms it actually wanted to seek appraisal, won three more seats on the board. could be considered controversial. announced that it would compensate its investors out of its own pockets. Canada’s Alternative Earth Elliott Management turned private Resources agreed to repurchase equity buyer, teaming up with Francisco Sagard Capital replaced CEO Dan shares owned by Jaguar Financial, Partners to buy assets from Dell, Friedberg with a Vice-President led by Vic Alboini, in return for which is restructuring to gain antitrust of its main investor, Canada’s cancelling some awards due at the approval for the acquisition of EMC in Power Corp, for unknown reasons. end of a lawsuit between the two another deal influenced by Elliott. Elliott’s Graeme Routstan, an investor in parties. Evergreen private equity division is also Performance Sports Group, where run by its head of activism, Jesse Cohn. Friedberg is on the board, had been Mittleman Brothers and Driehaus critical of Sagard’s conduct in signing Capital Management led opposition Shareholders at Ashford Hospitality a standstill at the company. He has to the merger of Carmike Cinemas Prime rebuked directors for fighting a since offered to buy Sagard’s stake in with AMC Theatres, backed by ISS and lawsuit against Sessa Capital, as more the retailer. Glass Lewis. A shareholder meeting shares were withheld than voted for was subsequently postponed. each director. The entire board tendered Elliott Management sold out of Qlik their resignations, but continued in post Technologies after the company Mitra Energy added representatives after the offers were rejected. agreed a $3 billion sale to private of Livermore Partners and Tyrus equity firm Thoma Bravo. Elliott Capital to its board of directors, along VIEX Capital sued YuMe just weeks profited from the deal, but the price with a new Executive Chairman. As a after winning board seats in a proxy represented a rare discount to the result of the changes, and following contest, saying the company had stock’s 52-week high. additional pressure from West Face withheld crucial documents and that it Capital and Ontario Teachers could seek a majority of the board next TheStreet survived a withhold vote led Pension Plan, the company will year if the matter was not settled. VIEX by Spear Point and Raging Capital now focus on the acquisition and also won five seats on the board of Management, re-electing Chairman development of undervalued oil and Support.com. Larry Kramer. It also announced the gas assets.

22 Artisan Partners disclosed a stake in Deutsche Börse shortly before its planned merger with the London Stock Exchange Group.

Europe to make a bid for Alliance Trust, business to private equity firm EQT saying that following discussions with for €1.2 billion. Proceeds from the real Investors dominated Volkswagen’s representatives of Alliance, acquiring estate unit are to be reinvested in the annual meeting but voted conservatively. the Scottish publicly listed fund “would remaining industrial services business, Discharge of management’s liability for not be in the best interests of its with new CEO Axel Salzman saying “We actions over the past year was approved shareholders.” have brought Bilfinger to a point where by 94% of shareholders, while close to we can be more flexible and agile.” 100% voted in favor of the dividend, which Electra Private Equity announced PIRC had opposed, though ISS had the resignations of three directors from Investors at listed Swiss hedge fund recommended in favor. Representatives its board, including former interim- Alpine Select voted in favor of a of the Pötsch family and Qatar Investment Chairman Kate Barker. All of the 24 Swiss Franc per share dividend Authority were elected to the supervisory departing board members had joined proposed by activist investor ALTIN. board. However, a legal firm backed the company before November’s proxy In addition, CEO Tony Morrongiello by Elliott Management on behalf of contest with Sherborne Investors, announced he would step down from his investors including CalSTRS launched which has since installed Ed Bramson position, to be replaced by Alpine’s CEO a class action lawsuit and said it was as interim-CEO. Claudia Habermacher. preparing another over economic losses following last year’s emissions scandal. Stock Spirits Group announced a DRS Data and Research Services’ special dividend of 10 pence per share, largest shareholder and former Chairman Guy Wyser-Pratte invested in German saying that the move was proof the Malcolm Brighton won a proxy contest drugmaker Stada, after the company company did not intend to undertake with 95% of the vote. Gary Brighton, the moved to hire bankers for a strategic any mergers or takeovers by the end company’s Sales & Marketing Manager, review just two weeks after its CEO of the year. The announcement came was elected to the company’s board. stepped down due to “a serious, long- a month after Western Gate Private Investors also voted in favor of listing the term illness.” The company, which Investments won a proxy contest company on London’s AIM market. has also been targeted by Active with a plan which included stopping Ownership Capital, will hold its annual Stock Spirits’ M&A activity, although a Artisan Partners bought a stake meeting in August and plans to overhaul symbolic shareholder proposal on that in Deutsche Börse ahead of a its supervisory board. topic failed. planned merger with the London Stock Exchange Group. ISS and Glass Lewis Rothschild-founded asset manager German engineer Bilfinger Berger recommended investors in the latter RIT Capital Partners dropped plans agreed to sell its most profitable back the deal.

23 Caravan manufacturer Fleetwood was targeted by Sandon Capital.

Rest of World A group of shareholders in Singapore’s included the company’s real estate Oriental Group withdrew a proposed division, which he said was worthy of Bank of East Asia said it would close requisition. The shareholders did not further investment. its securities offices in Hong Kong in an say why they would not be proceeding effort to cut costs. Elliott Management with an attempt to replace five of the Sandon Capital called for a breakup has called for the company to consider company’s eight directors. of Fleetwood, arguing that the selling itself, and opposed share caravan-maker was worth more as issuances. AMP Capital said there was a sum-of-its-parts than as a whole shareholder support for its plans to company. In particular, the activist Noble Group announced the departure reform its China Growth Fund, as suggested selling Searipple, an of its CEO and said its Chairman would LIM Asia Multi Strategy Fund gained accommodation business. step down within a year ahead of a rights backers for a proposal to liquidate issuance. The company has been under the unit. AMP Capital’s Chairman InterOil successfully re-elected all attack from activist short-sellers Muddy Adam Tindall said investors liked eight of its directors with at least 72% Waters and Iceberg Research. the exposure to China given through of the vote, in the face of a challenge the fund but Geoff Wilson threw his by former CEO Phil Mulacek. The China Resources Group opposed weight behind the wind-up. dissident is likely to continue his a share issuance by Hong Kong-listed opposition to a $2.2 billion merger with real estate developer China Vanke. LONSIN Capital increased its stake in Oil Search through to a shareholder The 15% shareholder was concerned Asia Pacific Wire & Cable to above vote on the deal currently scheduled the placement, designed to pay for an 5%, in the hope that management for July 28. acquisition from Shenzhen Metro, would would take its concerns more dilute its stake and make the latter the seriously. The fund said it had enjoyed A shareholder at South African company’s largest investor. more contact from the company retailer Lewis Group has sued for since launching a campaign, and now an injunction to hold four directors Singaporean real estate investment hopes for a board seat. accountable for the company’s company Imperium Crown called a business practices. David Woollam special meeting for June 30 following Alex Waislitz’s Thorney Opportunities denied he was short the stock and a requisition by activist investors. The called for a A$100 million buyback at said he only wanted to highlight contest was marked by confusion over Fairfax Media and the sale of non- Lewis’ impact on poor people. the beneficial owners of the dissident’s core assets. However, the activist stock. said his recommendations no longer

24 Cultivate your expertise

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   www.activistinsight.com New investments

A selection of the activist investments from around the world in June.

VIEX Capital unveiled a stake in touch-screen developer and producer, Immersion. The activist has recently prevailed in proxy contests against YuMe and Support.com.

Activist Company Date Notified Stake

Glendon Hudson Independent Film Development Jun 30, 2016 9.6% Hudson said in a regulatory filing he would oppose any equity issuance that had the effect of diluting his stake. VIEX Capital Immersion Jun 29, 2016 5.7% Fresh from two successful proxy contests, VIEX turned on Immersion—previously a target of Starboard Value. Wyser-Pratte Management Stada Jun 27, 2016 3.0% France-born/US-based Guy Wyser-Pratte is back in Europe, just as Stada faces a proxy contest with Active Ownership Capital. Hudson Executive Capital Eagle Pharmaceuticals Jun 27, 2016 6.1% Hudson’s Jim Woolery recently said the activist had received 16 requests for investment from companies since launching. Concerned Shareholders New World Oil and Gas Jun 23, 2016 10.5% London AIM-listed New World faces a proxy contest aiming to remove three of its directors. Harbert Management Corp Perceptron Jun 23, 2016 5.4% Harbert called for Perceptron to release more information and joined forces with fellow shareholder Moab Capital to force change. Almitas Capital ZAIS Financial Jun 23, 2016 7.4% Almitas Managing Principal Ron Mass wants to block a merger and instead force the fund company to liquidate. Elliott Management Imperva Jun 20, 2016 9.8% Cyber-security firm Imperva is likely to be the latest target of Elliott’s push for consolidation in the IT sector. Southeastern Asset Management Applus Services Jun 16, 2016 14.7% Southeastern, together with Egyptian billionaire Nassef Sawiris, has a reputation for backing companies with strong management. Elliott Management LifeLock Jun 16, 2016 8.8% Identity theft protection company LifeLock started the year facing a short-seller and now has Elliott on its register. William Lambert/Michael Langford Pilbara Minerals Jun 14, 2016 0.5% A group of up to 100 shareholders founded in internet chatrooms seeks to protest against lowball takeover offers. Elliott Management Premier Farnell Jun 14, 2016 5.7% The UK’s Premier Farnell only found a new CEO in March after a year engaging with GO Investment Partners, and now faces a potential battle with Elliott to pass a £792 million merger with Daetwyler Holdings.

26 Elliott Management disclosed a new stake in LifeLock, an identity theft protection company.

Activist Company Date notified Stake

SAIL Capital Partners Ener-Core Jun 13, 2016 15.6% As well as removing a former SAIL employee from the company’s board, the activist may remove a majority of the board. Thorney Opportunities Fairfax Media Jun 10, 2016 Unknown Alex Waislitz’s fund called for a A$100 million buyback and the divestment of non-core assets at the publishing company. Theo Botha Anchor Group Jun 09, 2016 Unknown The South African activist criticized the asset manager for putting aside profits to pay compensation without informing investors. Shandong Xiangguang Group Reservoir Minerals Jun 09, 2016 6.5% Shareholders backed a merger with Nevsun Resources after the consideration was increased in the face of shareholder pressure. Elliott Management PulteGroup Jun 07, 2016 4.0% A month after shareholders rejected a dissident slate from former CEO William Pulte, the company offered its founder a say on who will lead the organization going forward. Elliott has thus far been a quiet participant in the drama. Raging Capital Management TheStreet Jun 07, 2016 9.3% Raging sought to deny TheStreet a quorum at its annual meeting along with Spear Point, but failed badly. Lisippo Banca Popolare di Milano Jun 06, 2016 Unknown Opposition to BPM’s merger with Banco Popolare will come down to a mass mobilization of shareholders thanks to the co- operative’s unusual voting structure, which gives each investor one vote. A two-thirds majority is required. Crystal Amber The Restaurant Group Jun 06, 2016 1.0% The UK activist reportedly bought a stake in the restaurant operating company, but has yet to float its demands. Local Authority Pension Fund Forum WPP Jun 06, 2016 Unknown Advertising company WPP has long annoyed shareholders with its compensation policies, but passed this year’s vote. Dialectic Capital Management Covisint Corporation Jun 01, 2016 5.5% Dialectic is the latest shareholder to claim Covisint requires a “different set of eyes,” and may run a proxy contest. Wynnefield Capital MVC Capital Jun 01, 2016 7.0 % Wynnefield overtakes Bulldog Investors and becomes the largest activist in the business development company.

27 Monthly summary

Monthly

Activist targets by geography Activist targets by sector

Issuer HQ location June 2016 June 2015 2016 YTD Sector June 2016 June 2015 2016 YTD

US 36 33 306 Basic Materials 8.6% 19.6% 13.4%

Canada 4 9 30 Conglomerates 0% 3.6% 0.4%

UK 4 2 24 Consumer Goods 8.6% 7.1% 8.0%

Australia 6 3 30 Financial 25.9% 17.9% 24.4%

Europe (excluding UK) 2 1 32 Healthcare 5.2% 5.4% 8.0%

Asia 4 6 32 Industrial Goods 8.6% 8.9% 5.8%

Other 2 2 9 Services 29.3% 21.4% 23.8%

TOTAL 58 56 463 Technology 13.8% 16.1% 13.8%

Companies publicly subjected to activist demands by company HQ location Utilities 0% 0% 2.4% Proportion of companies publicly subjected to activist demands by sector

Activist targets by market capitalization Activist demands by type

Market Capitalization June 2016 June 2015 2016 YTD Demand type June 2016 June 2015 2016 YTD

Nano-cap (Less than $50mn) 27.6% 12.5% 17.9% Board-related 41.2% 39.0% 46.5%

Micro-cap ($50mn - $250mn) 20.7% 33.9% 20.3% Balance Sheet 11.8% 8.5% 9.9%

Small-cap ($250mn - $2bn) 22.4% 28.6% 25.7% Business Strategy 7.1% 14.6% 4.8%

Mid-cap ($2bn - $10bn) 13.8% 16.1% 14.5% M&A 22.4% 23.2% 12.7%

Large-cap (More than $10bn) 15.5% 8.9% 21.6% Remuneration 4.7% 7.3% 3.4%

Proportion of companies publicly subjected to activist demands by Other Governance 11.8% 7.3% 21.7% market capitalization Other 1.2% 0% 1.0%

Proportion of public activist demands by demand type

Success of resolved demands Number of active activists

Outcome June 2016 June 2015 2016 YTD June 2016 June 2015 2016 YTD

Activist at least partially successful 41.2% 53.4.2% 52.9% Active activists 66 54 377

Activist unsuccessful 45.8% 33.0% 37.8% Number of investors making a public demand of a company Withdrawn demands 13.0% 13.6% 9.3%

Outcomes of resolved activist demands Performance Value of activist investments

-1.39%* $266.3bn

Stock price performance of activist-held US stocks in May 2016 Approximate value of global activist investments as of June 30, 2016 (S&P 500 Index: -0.02%*)

N.B. 1. All data exclude activist short positions N.B. 2. All percentages (excluding performance) are given to one decimal place, and may cause rounding errors N.B. 3. YTD figures as of 30/06/2016 unless otherwise specified *Trimmed mean (10%)

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