Since the week has been relatively short of news, we thought we’d look back at the past proxy season and ask that perennial question – where are they now?
Stocks at the center of a proxy contest in the first half of this year have seen diverging fortunes, with the outcome of the vote apparently having a strong bearing on their return profile. Of the 17 U.S. companies that went to a vote and for which the data is available, those where an activist won at least one board seat are currently up an average of 13% since their respective meetings, while those where management was victorious have not won a lot of new support from the market. Their shares are down 2% on average.
What’s behind this phenomenon? It might be assumed that investors piling into stocks after a proxy contest view the success of an activist as a catalyst for value creation, while a management victory merely offers more of the same – and if the company is troubled enough to warrant an activist intervention in the first place, the status quo probably isn’t all that attractive. General Motors shares are up 4.5%, for instance, but Fiesta Restaurant Group and Sevcon are down 13% and 11% respectively.
Yet an interesting quirk is that the week after a proxy contest isn’t necessarily an auspicious one, regardless of the result. Half the stocks where an activist won were in the red a week after the vote, while slightly more than half of companies where management prevailed were negative.
Some unique circumstances clearly play a role. One activist success, Sito Mobile, was contested for weeks, but the stock has rocketed since being resolved. Continued agitation by an activist after defeat may not be good for stocks. Taubman Centers is down 2% with Land and Buildings calling a special meeting immediately after losing at the annual one.
Nonetheless, the trend is relatively clear. Stocks with activists newly appointed to the board were up 0.1% on average after one week, 0.5% after two weeks and 4% after three weeks. Where management was successful, shares were on average down nearly 2% over the first week, flat at the end of the second, and up just 1% after the third.
Those that buck the trend are therefore newsworthy, including the stories about Buffalo Wild Wings’ struggles since its June 2 vote. Shares are down 19% on uncertainty over the company’s strategy, with CEO Sally Smith still in office for the time being but Marcato Capital Management pushing for refranchising of stores. On the other side, ARI Network Services has leapt 34% since management bested Park City Capital in early January after it agreed to sell itself. Ironically, Park City had initiated its campaign with a call for management to consider strategic alternatives.
Article by Activist Insight