Activist Investing Is Entering The DNA Of The Market

Yesterday Activist Insight was out en masse at Skytop Strategies’ Shareholder Activism; Unlocking Shareholder Value conference in New York City. While there was no breaking news, the following points (quotes blind due to Chatham House Rules) reflect the topics under discussion.

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Activism is entering the DNA of the market. "5% of the directors at significant U.S. companies have now been appointed by activists," (for significant, read above $500 million in market cap).

In the U.K., a lack of faith in CEOs and urgency for structural changes make for a benign environment for activism, according to a newly launched survey from Brunswick. Yet shareholder engagement is streets ahead of the U.S. “They’re much more responsive to shareholders and there’s no activism to speak of.”

Environmental, social, and governance (ESG) activism is likely to increase, following fund launches by Jana Partners and ValueAct Capital Partners. “Investors have been looking for a really long time for ways to minimize risk in environmental and social issues. Identifying ESG risks and identifying where they are material is really where we are heading.”

New activists will find it harder to win concessions. "A board will tend to make that first-time activist work a lot harder... They're going to test their mettle." My own panel, comprised of a lawyer, a banker, a communications adviser, and an activist all agreed that settlements would continue to fall in 2018 thanks to a better reading of the shareholder landscape and more decisions based on activists’ track records of value-creation.

Being a director in the middle of an activism situation is no easy ride. There is still some resistance to getting directors out to meet shareholders, and post-settlement, there are a host of factors that shift the balance of strategic conversations. “Having an army of analysts behind one director and no analysts behind all of the other directors is... not the healthiest situation."

Being an activist nominee is not much better. “You’re essentially a pawn, a participant, to a board game that you essentially have very little control of except for when you bring, what your mother would say, your very best self.”

In light of a Delaware court’s recent verdict on the enforceability of oral settlement agreements, the importance of getting agreements in writing can hardly be emphasized enough. “Operating on a handshake and a smile is what keeps litigators in business, because at some point the smile will fade and someone will deny the handshake ever took place.”

Carl Icahn has two proxy contests brewing, at Xerox and SandRidge Energy, after the latter rejected his director nominees earlier this week. Does this mean Icahn is losing his touch, after a flirtation with Washington politics last year? SandRidge’s letter to shareholders this week suggested that it feels it can win a fight, calling for “all shareholders” to have a say on new directors, but both companies may also be working on finding white knights to take them private. Some kind of change for both companies feels inevitable, even if Icahn isn’t the driver.

Amid a deluge of criticism for bailing on its plan to help fix Clariant after it helped sink the Swiss company’s merger with Huntsman, quote of the week comes from David Millstone, a co-chief investment officer of 40 North Management – one of the two activists owning the 25% stake sold to Saudi Basic Industries (SABIC):

"SABIC's strategic investment in Clariant is a successful outcome and we are pleased to have played a role in making it possible."

Article by Activist Insight