Stock market rallies three days in a row, stimulus on its way. Are activists looking for fun and feeling groovy?
With stock prices still in correction territory (the S&P 500 is down by almost one-quarter from its peak), thoughts have turned to whether this represents a buying opportunity for activists. A week after Bill Ackman said he warned his portfolio companies, “Hell is coming,” he announced that he had put the proceeds of some smartly-timed hedges back into stocks – almost $2.6 billion in fact.
Investors Takiing Advantage Of The Current Market
Engaged Capital and Land & Buildings are reportedly fundraising to take advantage of the current market. Carl Icahn is on maneuvers. Small wonder that 14 poison pills have been implemented at S&P 500 or Russell 3000 companies year-to-date, according to Activist Insight Governance. Opportunity does not self-isolate.
"If redemptions don't become a problem and fundraising works, especially if the indications are that the economy is coming back and stock prices don't react as quickly, that's tailor-made for an activist," said David Rosewater, Morgan Stanley’s activism defense chief.
Those investors that snatched a watchlist of companies they were already working on when leaving the office are likely to be in the vanguard, according to advisers I spoke to this week.
"Some investors are aggressive, raising money and jumping in," Ele Klein, co-head of Schulte Roth & Zabel’s shareholder activism practice told me. "People who don’t do activism for a living seem to have less appetite at this moment."
Activist Funds Are In A Better Shape
"Activist funds are much better equipped today to come through the other side" than they were in the last crisis, Rosewater adds. "But they have to have enough confidence to commit the capital."
Indeed, most of the money deployed so far appears to be going to existing, or recent positions where additional capital can be deployed with a high degree of confidence or can tip the scales of a campaign.
Other factors favor delay, especially for new positions. As well as the economic uncertainty, companies may still be adjusting to new working conditions and future targets could still be in the middle of the pack. Waiting a few more days could flush out underperformers and mean positions below 5% don’t have to be disclosed to the market via 13F filings until August, rather than in just over 45 days. That would be a better starting point for a campaign with the potential to develop into a proxy fight in 2021.
"People are not jumping on targets they wouldn't otherwise have had but they are evaluating what the opportunities are," says Schulte Roth & Zabel Partner Aneliya Crawford. "There's an expectation that the underperformers will be flushed out."
Full-blown campaigns appear to be on hold for this proxy season, although Crawford insists that most logistical worries are overblown.
The Timing Of Nomination Windows Of Companies
"I do not imagine we'll see an acceleration of campaigns," says Daniel Kerstein, an investment banker focused on activism defense at Barclays. "Timing-wise, the majority of companies' nomination windows have closed. Starting an activist campaign at this time might be at best a little impractical."
"A lot of people are finding opportunities to be more open to settlements, on both sides," Crawford says. "In particularly vulnerable companies, activists are concerned about running a full-blown contest because they don't think the companies can survive it."
But that doesn’t mean that the proxy season will be entirely comradely. For one thing, some activists will need to go through with nominations because of nomination windows and can blame companies for maintaining the deadlines.
"We're not seeing a lot of companies saying they want to delay their annual meeting – some of them because they don't want to reopen nomination windows," Klein said. "I think the lack of full thoughtfulness about whether or not to delay at this time has been a little disappointing to me."
Over on Activist Insight's LinkedIn page, agreement broke out following last week’s column. "Huge and building sensitivity towards behaviour of companies and investors of all kinds as the #covid19outbreak intensifies," wrote Harald Kinzler, a partner at Kekst-CNC. "Their actions now will determine their reputation once we come out of this #crisiscoronavirus. Think before you pay dividends, for instance, while having to let employees go. Agree with MacKenzie Partners, Inc. that there is neither appetite nor attention for proxy fights for now."
"Completely agree. Time for everyone to take stock," said Sarah Wilson of U.K. proxy voting adviser Manifest. "We must have an orderly market in AGMs but investors will be suspicious of any moves which they see that use COVID19 as an excuse for bad actors to exploit vulnerabilities. You can't expect high remuneration, share buybacks, government bailouts and treating your stakeholders as expendable without consequences. Corporate social irresponsibility will be judged – harshly."