We recently asked a friend of ours in the proxy contest world how it’s going. We received an unexpected reply:
- Not very busy right now … No proxy contests of note in the first Q. I don’t think there’s even a single multibillion contest on the horizon this season. Some kind of sea change is rolling through the activist ranks – it seems like anyone with a credible reputation for driving value-accretive change is getting board seats without going anywhere near a definitive proxy.
We didn’t see this coming.
Charlie Munger: Invert And Use “Disconfirming Evidence”
We wondered, what does the data say? More or fewer? And what would this mean?
The evidence supports our friend’s observations. While the number of activist situations remains as high as ever, we see fewer and fewer proxy contests.
We plumbed the always-useful SharkRepellent data set for answers. We looked at activist projects and proxy contests since 2012. We defined each “year” as the trailing twelve month period as of Feb 23 of each year. So, 2012 consists of activist situations from Feb 24, 2011 through Feb 23, 2012, and so forth.
So, the number of activist projects has definitely increased. In the 2012 “year” there were 406, while in 2015 there were 525, and 603 in the twelve months ending today.
The percentage of projects, though, that develop into proxy contests has definitely decreased. In 2012, 21% of the activist situations became proxy contests. This rate declined to 13% this year, down considerably from 19% in 2015.
That low 13% rate may tick up slightly as a few more of the 603 identified activist projects become proxy contests in the coming few weeks. There’s not much time left, though, for investors to announce these.
[Note on data: we used the ShareRepellent definition of what constitutes an activist situation and a proxy contest, including their designated date for the announcement of the activist situation, without further review or revision.]
What’s going on, then?
- ?A declining stock market prompted activist investors to pull back, manage expenses more closely, and focus on basic portfolio performance
- ?Or, portfolio companies now understand that many activist investors both can add real value and have support from the broad shareholder base, so companies include them on the BoD rather than oppose them.
We harken back to our friend’s comments, about “credible” and “value-accretive”. The environment seems better than ever to dispense with the proxy contest and get right down to improving a portfolio company.
We just hope that portfolio companies see it this way, too. Many more do than before, but as the 81 proxy contests in the past 12 months show, not all of them do.