This Proxy Season’s Enthusiasm Was Palpable

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One of the biggest gatherings of the activism community took place at the beginning of the 2020/21 proxy season this year and even virtually, this year’s enthusiasm was palpable.

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Q2 2020 hedge fund letters, conferences and more

Although the specter of COVID-19 hung over the logistical and philosophical future of the industry, speaker after speaker told the Active-Passive Investor Summit that the stage was set for a busy spell of activism.

"I think people are ready for those 130-page decks now," said Dan Zacchei, the president of special situations at Sloane & Co. "The kumbaya season is over," agreed his fellow panelist Jon Feldman, a Canadian activist lawyer with Goodmans.

Activism Remains Depressed

Activism remains depressed year-to-date, as our third-quarter statistics showed, and the last seven days alone have seen new campaigns launched by Trian Partners, Starboard Value, Sachem Head Capital Management, Third Point Partners, and Amber Capital. Big questions of strategy and M&A loom for companies worldwide, with Exelon offered for a breakup and five other targets for an outright sale at the conference alone. European and Japanese specialists expounded on the benefits of their respective markets.

"March and April were one of the best buying opportunities we've seen in quite some time," said Jana Partners’ Scott Ostfeld. "I think we're going to see an increase in activism because of pent up corporate activity and private equity [readiness] - that backdrop is very favorable to activism."

"The future for M&A and the future for M&A activism post-COVID looks pretty bright," added Patricia Olasker, a lawyer at Davies Ward Phillips & Vineberg, who noted that some companies are cash-rich, others distressed, and markets separated by unequal recoveries from the pandemic. Apartment Investment & Management Co. would be "a Scooby snack for Blackstone," mused Jonathan Litt, a top-20 shareholder.

In a potential reversal from the past few years, dedicated activists targeted a diverse array of sectors. Corvex Management’s Keith Meister is joining the party in utilities, suggesting they are safe even from politics. ValueAct Capital Partners, meanwhile, believes that the banks are safer than investors give them credit for. Starboard Value is continuing to make chemicals a big part of its portfolio.

Notably, those activists are less reliant on putting their picks into play. Activist demands for M&A and breakups at U.S. companies are down by half so far this year. Outside of the conference, Third Point this week raised eyebrows by calling on Disney to halt its dividend to invest in content. As Lars Förberg, a founding partner of Cevian Capital, noted, low interest rates mean long-term growth is more important than short-term cash flow. Gatemore Capital’s Liad Meidar suggested recovery stocks could be good bets even if they don’t reach their former values. When the deals dry up, activists who got the big strategic questions right are the ones who will be singing.

ESG Issues In The Upcoming Proxy Season

Another subcurrent at yesterday’s event was the impact of environmental, social, and governance (ESG) issues in the upcoming proxy season. Eva Zlotnick, one of the founders of Inclusive Capital with Jeff Ubben, said a CEO cannot currently be fired for environmental or social underperformance. But many activists were at pains to highlight the sustainable attributes of the company’s they target, whether out of sincere belief or because those companies have the best growth prospects.

As it affects next year’s proxy fights, activists will still have to make an argument and present strong nominees, not just identify companies with self-inflected wounds, said Cristiano Guerra, head of special situations at Institutional Shareholder Services (ISS). BlackRock’s America’s investment stewardship head, Ray Cameron, said his firm would be focusing on governance but said companies could not neglect employee welfare and race.

Quote Of The Week

Quote of the week comes from Sandpiper Asset Management’s Samir Manji, who has requisitioned a special meeting to replace a majority of the board of Artis REIT. The activist launched the fight after Artis announced plans to divest its retail properties, and this week said of the contest:

"This is a referendum on the future direction of the REIT and the meetings must be merged at an absolute minimum. We look forward to the meeting date being set forthwith absent which we intend on taking whatever steps are needed to advance the calling of a meeting to overhaul the board in November."