Consent solicitations are a curiosity of the activism world that rarely pile up in any significant volume, yet September is upon us with no less than four current campaigns.
Both Caligan Partners – formed by former Carl Icahn associate Samuel Merksamer – and Velan Capital – managed by Bala Venkataraman – launched consent solicitations for board seats this week, while Icahn is also seeking to act by written consent at Occidental Petroleum. A fourth is taking place at China Blood Cord, led by a self-styled “Committee for China Cord Fairness.”
For activists confident that the shareholder base can be quickly roused, consent solicitations are an attractive proposition. Although they might require consents representing as much as half of the outstanding shares to take effect, or in the case of Occidental, a two-step process involving the collection of 20% of shares in order to set a record date, they can also be a way of seizing the initiative from a company’s board and management, which could move an annual meeting.
Andrew Freedman, co-head of law firm Olshan Frome Wolosky’s activism practice, agrees that the current crop is unusually large. However, he points out that activists are unlikely to act immediately after an annual meeting, when investors have recently had their say, or immediately before, given the lower required thresholds for effecting change – typically a plurality of the votes cast.
"The annual meeting threshold is lower," explains Jordan Kovler, a proxy solicitor at Harkins Kovler. "With every activist client of ours, the first thing we'll do is look for the expected timing of the next annual meeting, then the ability to act by special consent or special meeting. It’s a case-by-case situation."
All of the advisers I spoke to said they thought consent solicitations were typically undertaken by necessity, rather than preference. John Ferguson, a proxy solicitor at Saratoga Proxy, said the growing prevalence of special meeting or written consent provisions in company bylaws might have expanded the opportunity set for companies, while Aneliya Crawford, a partner at Schulte Roth & Zabel, says investors are less patient. That’s not so much a result of volatility in the market, she argues, more that activists have "less of a desire to be stuck to a spring calendar."
A feature of at least two of the current consent solicitations – Velan’s at Progenics Pharmaceuticals and Icahn’s at Occidental – is that they follow earlier sparring between the two parties. Velan had a slate of nominees invalidated ahead of Progenics Pharmaceuticals’ annual meeting in May. It ran a successful withhold campaign and is seeking to capitalize on that momentum with an entirely new slate. At Occidental, Icahn failed to prevent the company’s acquisition of Anadarko Petroleum but is seeking to replace board members anyway – he says, in order to provide oversight of further M&A decisions.
The reason for Caligan’s urgency is less obvious, especially as it notes in its proxy that it has been studying Amag Pharmaceuticals for 18 months. Yet with the company burning through one-third of its cash and investments in the past six months, forthcoming product launches, and a phase 3 study for anti-coagulant ciraparantag in the offing, the activist may have decided it couldn’t wait to get inside the boardroom.
Mega-cap activism has brought plenty of thrills over the years. Trian Partners and Procter & Gamble spent tens of millions of dollars fighting over one board seat just two years ago. Mondelez’s former CEO Irene Rosenfeld used to complain about the time spent each day appeasing Trian and Pershing Square Capital Management. Currently, the pendulum has swung back in favour of chumminess. Trian’s Nelson Peltz and P&G’s David Taylor did a double act at Delivering Alpha this week, while Randall Stephenson said some nice things about Elliott Management’s recommendations for AT&T. Will it last? A cynic might say that an environment where everyone is up over 30% is conducive to good manners.
Quote of the week is from Merrimack’s account of odd settlement talks between the biopharma company and JFL Capital Management. No doubt JFL will have its own explanation for the breakdown in talks but for now, this is why a two board seat, plus strategic committee chairmanship, plus shareholder vote on any acquisition that the board could not agree upon, settlement was rejected.
"Unfortunately, these discussions broke down over a few key issues, including the requirement by JFL that the strategic committee would have binding conditions placed on it preventing the committee from voting against an asset acquisition if they did not think it was in the best interest of the Company and all shareholders," the company said. "Merrimack ultimately concluded this was not something that could be agreed to while preserving the board’s ability to fulfill its fiduciary duties."