The big news this week is that Nelson Peltz’s Trian Fund Management and Procter & Gamble are set to collectively spend the record sum of $60 million to fight each other in a proxy battle. Everything is relative in this world, and with annual sales of $65 billion, P&G may well be considered to be spending a reasonable amount to defend itself from Peltz’s attempt to join the company’s board. After all, we are talking about the largest firm by market capitalization to ever face a board challenge.
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Facing a $220-plus billion juggernaut that could easily anticipate spending $35 million to keep the activist at bay, Peltz would have been a fool to go to battle without a substantial budget. In fact, his hedge fund booked expenses of $25 million.
To provide you some scale, since the beginning of 2017, excluding the P&G battle, the average anticipated cost for U.S. proxy contests was $3.6 million, according to Activist Insight Online data. On average, issuers were anticipating costs of $2.5 million, and activists of $1.1 million. In 2016, when targeting giant companies was out of fashion, the average combined anticipated cost was $2.2 million.
P&G's proxy solicitors D.F. King & Co. and Mackenzie Partners will have 450 people working on the dispute, while Trian's adviser Innisfree M&A expects to employ 200 people, providing an interesting talking point for the debate over whether activists destroy jobs.
Trian is not new to embarking on expensive adventures. In 2015, it anticipated costs of $8 million for its unsuccessful proxy contest at DuPont – against the $15.4 million anticipated by the company. Interestingly enough, MacKenzie worked with Trian on that occasion.
Eight-digit proxy contest costs are rare exceptions. Since the beginning of 2016, only Elliott Management's battle with Arconic, which concluded with a settlement after the company's CEO Klaus Kleinfeld committed career suicide, and Greenlight Capital's unsuccessful fight with General Motors have reached that threshold. Arconic anticipated a spending of $17.5 million, against the $15 million put to budget by Elliott, while General Motors booked expenses of $15.4 million, against only $6 million of Greenlight.
Among the smaller proxy contests waged since the beginning of 2016, Chico's FAS' battle with Barington Capital tops the list. Oddly, the issuer booked expenses of $5.9 million, and the activist only $500,000. It ended with Barington withdrawing its slate after proxy voting advisers Institutional Shareholder Services and Glass Lewis backed Chico's director nominees.
The outcome of a board battle is determined by hundreds of factors, and at Activist Insight we like to think that being on the right side of the debate is among the most critical. Anticipated costs can differ from the actual expenses, which are disclosed sporadically and are not easy to compare. However, the general impression, looking at the biggest proxy contests, is that being able to splash out more than the opponent also helps.
Article by Activist Insight