Activist Investors Got Creative In 2019 With Fewer Campaigns

(Bloomberg) -- While the pace of shareholder activism cooled this year, flashes of ingenuity in campaigns and settlements kept things lively.

ValueAct Capital Management, for example, struck a lengthy information sharing agreement at Citigroup Inc. in lieu of a board seat. Carl Icahn, meanwhile, tried to push for an early board vote at Occidental Petroleum Corp. while Bill Ackman returned 57% on his investments without lifting his poison pen once.

“It was very dynamic in the sense that you saw the full-range of shareholder activism,” Andrew Freedman, co-chair of the shareholder practice at law firm Olshan Frome Wolosky LLP, said in an interview.

“A decade ago, activist campaigns looked very similar, and I think you are seeing activists approach situations in a more out-of-the-box, creative way,” he added.

Roughly 827 public companies were targeted by activists this year through Dec. 17, down about 11% from 2018 totals, according to data compiled by Activist Insight. This year had the lowest total since 2015.

Declines came in every category of company, from ones with market values of less than $50 million to those larger than $10 billion.

One reason there were fewer campaigns is because activists are focusing on large companies, which can be a safer bet, said Avinash Mehrotra, Goldman Sachs Group Inc.‘s global head of activism defense and shareholder advisory.

“Their size and diversification offer some perceived downside risk protection,” Mehrotra said. “Secondly, they tend to have meaningful dividend yields.”

A healthy dividend can be attractive at this late stage in the economic cycle, he said.

Activists have targeted 169 companies worth at least $10 billion this year, according to Activist Insight. That trails last year’s record of 194.

Unusual Truces

Several of these larger fights have resulted in unusual truces being struck rather then traditional settlements or nasty proxy fights.

AT&T Inc. adopted several measures presented by Elliott Management Corp. in October without a typical standstill agreement or board representation. Similar pacts occurred at Emerson Electric Co. and Marathon Petroleum Corp.

These sorts of accords can occur when a company views the activist’s efforts as constructive, said David Rosewater, global head of shareholder activism and corporate defense at Morgan Stanley.

“There is also a belief at some companies that if the actions being taken are not things that are absolutely being forced upon them, the companies don’t necessarily want to validate the idea with a settlement agreement,” he said.

In some cases, activists turned up the heat on companies seeking to swap out directors well ahead of an annual general meeting, said Aneliya Crawford, a partner at law firm Schulte Roth & Zabel LLP. They did this by courting support from fellow shareholders through so-called consent solicitations, which can speed up the process for activism.

Icahn launched an unsuccessful consent solicitation this year at Occidental before pursuing a more traditional proxy fight. Voce Capital Management also launched one at the insurer Argo International Holdings Inc.

“It’s become so prevalent for companies to defend themselves by making pro-active changes that it makes it almost impossible to wait it out until an annual meeting,” Crawford said. “You really have no other option if you want to have input on what the company is going to do.”

Activist Equity

This year also marked a further blurring of the lines between the strategies of activists and private equity.

A recent example: Evergreen Coast Capital Corp., Elliott’s private equity arm, agreed to acquire LogMeIn Inc. this week for about $4.3 billion with Francisco Partners. Starboard Value, another activist investor, adopted traditional private equity tactics when it emerged as a white knight for Papa John’s International Inc., investing $250 million in the pizza chain through a private placement.

Some private equity players, in turn, have acted like activists by using so-called “constructivism” to nudge companies to change. Firms including Waterton Global Resource Management and Catalyst Capital Group Inc. also launched full proxy fights.

“They’re teaming up with activists and they’re starting to take toehold positions and pressure the company,” Crawford said. “Not necessarily in a hostile way. But, you still have the leverage once the toehold is in place.”

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Matthew Monks

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