With the filing of definitive proxy statements this week, it is clearer than ever the Dan Loeb’s Third Point Partners and Campbell Soup Co are digging in for a messy proxy contest.
At more than $11 billion, Campbell Soup Co is likely to be the biggest U.S. company to be subjected to solicitations for two rival slates this year, after Starboard Value’s settlement with Symantec (a withhold campaign at Wynn Resorts was the other significant large-cap battle of the summer). As a full slate contest with near 40% Dorrance family ownership, it would in some ways be a bigger win even than Starboard’s overhauling of Darden Restaurants in the winter of 2014. Last year, Marcato Capital Management’s attempt to replace the entire board of Decker’s Outdoor faltered as proxy advisers adjudged the demand an overreach.
The biggest question hanging over Campbell Soup Co, however, is whether a buyer is out there.
Clearly, Third Point believes something was amiss with Campbell Soup’s strategic review. Even before Campbell Soup’s announcement at the end of August that it would sell noncore assets and focus on core businesses – to “work the balance sheet as hard as we work the income statement,” as interim CEO Keith McLoughlin said at the time – Loeb was pestering the company to be clearer about its willingness to sell up, writing to the board just a week before its announcement to keep up the pressure. In a presentation released Monday, the activist said its slate “wonder[ed] if all options were truly ‘on the table’ or if the incumbent board may have mislead shareholders about the scope of the strategic review.” Even yesterday, Third Point was weaponizing a books and records request to embarrass the company for its soft approach to sacked CEO Denise Morrison.
The board of Campbell Soup Co, for its part, knows more than the general market about the results of that review. To admit that no serious offers were forthcoming would be almost an admission that the company is overvalued, and therefore not an option for its directors. It says Third Point’s suggested areas for operational improvement have all been considered, and there is not yet enough meat in the broth to judge whether the rival slates would offer radically different ideas.
The result, therefore, is a contest about oversight and whether Campbell Soup Co should be punished for letting performance slip. Lacking the authority of a permanent CEO, McLoughlin’s desire to fight may falter. In that case, Third Point may be pressured to settle for a minority of the board, perhaps with other mutually agreeable director appointments.
More than anything else, the contest exemplifies the limitations of the current proxy system. Judging the two boards as two collective entities does a disservice to shareholders who could benefit from cherry picking from each side. Third Point’s slate, for instance, includes two female marketing experts under 50. Some of Campbell Soup’s barbs about the nominees that either worked for it before 2000 or have sat on its board recently may have merit. Nor would a sudden break in continuity serve the company well unless a sale was the only outcome. A universal proxy would make this a better, fairer fight.
Two interesting thought-pieces dealing with environmental, social, and governance (ESG) engagement landed this week. Peter Atkins, Marc Gerber and Rich Grossman of Skadden sought to demystify ESG for boards, arguing that such concerns should not be separated from economic decisions about how to put the best interests of the company’s shareholders first – at least in Delaware law.
Across the Pond, new advisory firm SquareWell Partners convened a roundtable where Hermes EOS Executive Director Hans-Christoph Hirt noted, while corporate disclosures have increased significantly over the last decade, reporting by investors still makes it “hard to assess whether [portfolio managers] are asking one or two perfunctory questions during an engagement meeting or if they’re actually having ESG-focused discussions with impact.” The report, which also features representatives from Cevian, BlackRock and Nestlé, is available on request.
It’s not often an activist admits not trying hard enough, quote of the week really ought to be Joseph Stilwell of Stilwell Group, whose speech at the annual meeting of Wheeler Real Estate Investment Trust concluded with this ominous warning:
“I approached this election in too lighthearted a manner – a mistake I will not make next year.”