Here are our landmark moments from 2019. Disagree? Want us to focus more on certain areas? Send your feedback to me or [email protected].
Q3 2019 hedge fund letters, conferences and more
Landmark moment:
This was a category with many strong contenders. ValueAct Capital Partners’ successful campaign for a board seat at Olympus set the tone for a strong showing by activists in Japan and may even have influenced the significant board change that took place via settlement at Toshiba in May. Elliott Management’s campaign at AT&T, and the reported hiring of three proxy solicitors by the media conglomerate, was notable enough even without a proxy fight.
Rice Investment Group’s overwhelming victory at EQT, despite the company’s adoption of a universal ballot, was also interesting. Yet my choice for the landmark moment of 2019 was Starboard Value’s investment in Papa John’s International. From being the most feared man in corporate America to being invited into a boardroom to shield the company from its founder, Jeff Smith stayed true to form and cleaned house – even replacing CEO Steve Ritchie. The stock price hasn’t done badly this year either.
Biggest surprise:
Seeing as many proxy fights going to a vote in the U.K. as in the U.S. was something of a surprise this year. But one fight in particular was full of surprises. Voce Capital Management received two blows in quick succession at Argo Group International when hit with a scathing recommendation from Institutional Shareholder Services (ISS) and then when two regulators pulled their approvals for the solicitation of proxies. Even more surprising, the Securities and Exchange Commission (SEC) investigated Argo’s executive compensation (the subject of Voce’s initial attack and ISS’ critique), the CEO resigned, five directors announced plans to step down, and Voce began the process of requisitioning a special meeting for a rematch.
Weirdest moment:
Texas Pacific Land Trust was always a weird campaign. Shareholders took advantage of a literal once-in-a-lifetime opportunity to nominate their own candidate (seats on the board are not by design subject to re-election), and when the trust tried to adjourn the meeting, attempted to hold their own in an adjacent room. Texas Pacific sued the activists but the row was settled with both of the rival candidates joining a special committee to review conversion into a traditional corporation.
Kitchen sink campaign of the year:
Pacific Gas & Electric, still fighting to get out of bankruptcy, had everything. Activist shareholders arguing the company shouldn’t file for protection from creditors, activist debtholders arguing that the courts should allow them to present their own exit plan, environmental and social activism in the form of ValueAct Capital Partners’ Spring Fund – arguably the first climate change proxy contest – and politics in the form of intervention by California’s governor, Gavin Newsom.
2019 was the year ESG funds were castigated for either not performing well enough or not being ESG enough and investigated by the SEC. On the other hand, Jamie Dimon has a lot to prove if he wants credit for the Business Roundtable statement this year.
Activists were cagier about their environmental, social, and governance (ESG) ambitions this year, at least on the record. That is disappointing, since if solutions are good for everyone, they deserve to be in the public domain. ValueAct has been the most vocal about the work it is doing but could be more so. Newly launched Impactive Capital should be more competitive in 2020. It’s early enough and not so crowded in the space that activist should still make money from doing good work and sharing their secrets.
