What Index Funds Can Do For Shareholder Activism

Activist news for May 11 below. Hit reply with the stories you want to know more about.

Stake changes

• Hudson Executive has taken its Heartware International stake up from 5% to 6%.
• B. Riley Financial ups its stake in United Online from 9.6% to 10.6%.
• Scopia Capital ups its CONMED stake from 8.6% to 9.9%.
• Sagard Capital ups its Performance Sports Group stake from 15.1% to 16.4%.
• Elliott Associates increased its stake in Mitel Networks from 10.7% to 12%.

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News

• Ambac Financial getting support from Cornwall Capital, which owns 4.9%. Cornwall is urging Canyon Capital to drop its proxy fight. Canyon owns 4.5% and wants Ambac to accelerate its settlement of some $4bn in insurance claims. Canyon had nominated 3 members for the board – now just one, with the annual meeting on May 18th.
• Activist investor TCI Fund Management is slamming Volkswagen AG for excessive executive pay in light of poor stock performance and bloated costs that hurt earnings even before the diesel-emissions scandal in 2015 that caused the carmaker’s biggest-ever loss. It wants a new incentive pay program.
• Sparton has reached an agreement with Engine Capital, putting two members on the Spartan board.
• Lewis Pell has gone live with his proxy battle at Cognetix Medical, pushing to get three members on the board. Pell has said that the board is destroying shareholder value and has no turnaround strategy.
• Imation has put forth five nominees for the Arlington Asset Investment board. Imation is looking to launch a website where it’ll take Arlington to task on leadership and poor financial performance.
• Blue Harbour founder Clifton Robbins calls out the “dirty secret of activism” at the Milken Conference last week. Says most important element of activism is investing — specifically “the right investment in the right company at the right price,” the report said. Ribbons went on to say that the thing that makes activist investors different from private equities is that they aren’t “paying a premium.” He said that while activists normally buy 5%-10% of a company usually at a nil premium, they can influence the company.
• Axiall gets more interesting. Has Shapiro Capital owning 9.7% and Franklin Templeton with 7.6%. Axiall rejected Westlake Chemical’s $23.35 a share offer in Apr. Axiall now says it’s exploring strategic alternatives for a sale of all or part of the company.
• Kerrisdale Capital has raised a fund with $100mm to go short a single company – Dish Network. It says the true value is 60%-80% below where Dish trades. The thesis is that the spectrum licenses are extremely overvalued.
• Colony Capital is in negotiations to acquire NorthStar Asset Management, which would recombine NorthStar Asset and NorthStar Realty Finance. Recall that Jon Litt’s L&B targeted NorthStar earlier this year.
• Altisource Residential sends a letter to its shareholders in connection with the proxy statement filed by a group of shareholders led by activist BLR Partners, owning 2.5% of the company. RESI argues that the group’s claims are false and misleading and urges shareholders to vote for its own five experienced director nominees.
• YuMe sends a letter to shareholders in connection with its upcoming annual meeting, urging stockholders to vote for its two director nominees. Activist players here are AVI with a 10.5% stake, Edenbrook with 5% and Viex with 15.8%.

Deeper thoughts and profile of activist situation

• Sorrento Therapeutics has Wildcat Capital as an activist, wanting the biopharma company to sell itself. They own 6.5% and Wildcat isn’t a typical activist, with the fund saying it was forced to take action here. It manages the family money of TPG Capital founder David Bonderman. Wildcat takes Sorrento to task over asset transactions structured with newly created subsidiaries, a lack of operational discipline and inappropriate financing transactions. The fund wants the CEO fired and three board seats, not to mention the pursuit of a sale. From the Wildcat letter … “We understand from our previous discussions with Dr. Ji that several large companies have expressed interest in acquiring the entire company or certain assets of the company at valuations that imply a significantly higher stock price than current levels. Why have Dr. Ji and the board not engaged an investment banker to explore such a sale? No matter the course of action selected, Dr. Ji and the board have the obligation to seek to raise additional capital without the massive dilution of the proposed financing transactions.”

Stories

• Research: Index Funds Are Improving Corporate Governance [link] There is evidence that passive investors are taking these actions with the belief that improved governance will eventually lead to improved performance and, ultimately, shareholder value. Specifically, we found that passive ownership is associated with higher profitability and firm value. That’s not to say passive investors are acting like active or even activist investors; they seem to be choosing their battles. Overall, our findings are consistent with passive investors improving firm performance by advocating for proven governance reforms that require a low level of costly monitoring on their part. While not active in the traditional sense, passive investors are not passive owners. Even without the power of exit they are leveraging the power of voice in their growing voting blocs to shape firms’ governance and policies.

Other good reads

• Yahoo investor hits back at ‘patent troll’ critique of activist shareholder Starboard Value [link]
• ‘Activist Mindset’ Drives Short- and Long-Term Stock Outperformance [link]
• Stan Druckenmiller presentation, “The Endgame,” from the Sohn Conference [link]
• Harvest Capital Strategies Delivers Letter to Green Dot Shareholders [link]

• We just got insight into what Bill Ackman wants Valeant to do next [link]
• ‘The company is at risk of getting into a death spiral’: Bill Ackman’s emails reveal a wild relationship with Valeant [link]
• Horizon Pharma hopes to resurrect once-dead drug deal [link]
• Billionaire Bonderman Family Steps into Activism Fray [link]
• VW’s Activist Needs Support [link]

Exclusives

• NEW Notes on FrontFour Capital target [link]
• ICYMI Update on Wynnefield Capital’s big target [link]
• ICYMI Stealthy activist at Progress Software [link]

Read up on shareholder activism

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism [link]

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