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No Shut-down for Activism

While activist activity was down a bit in the first quarter of 2020, compared with last year’s first quarter, according to Activist Insight’s “Shareholder Activism in Q1 2020” report, there were still plenty of shareholder demands made of public companies.

By sector, industrials was the largest group impacted by activism, followed by financial services and consumer cyclicals. Large cap companies were the most affected, with U.S.-based companies making up 70 percent of those subjected to activist demands.

Shareholder demands are still being made of public companies, according to Activist Insight’s “Shareholder Activism in Q1 2020” report.

Lazard’s 1Q 2020 activism review shows that the number of targeted companies in the first quarter of this year was roughly the same as in last year’s first quarter. On the other hand, Reuters, reporting on the Lazard review, noted that while 2020 began on a strong note, with activist firms pushing for change at 42 companies in the first two months of the year, new activist campaign launches fell by 38 percent in March, when the global economic shut-down began in earnest.  Further, Reuters reported that new activist campaigns were, “launched at the slowest pace since 2013 and corporate agitators put the smallest amount of money to work since 2016.”  

Even so, there are several high-profile campaigns looming. One getting some buzz, according to Bloomberg, is Standard General’s proxy fight with Tenga, Inc., a $2 billion media company. This contest will be the first-ever all-digital board fight. With Standard General seeking four board seats, Tenga’s virtual annual meeting on April 30 will be a test for activism, both digitally and in the world of COVID-19. 

While virtual annual meetings are nothing new, counting contested votes remotely is. Bloomberg noted that Broadridge Financial Solutions Inc., which prepares, ships and counts most of the proxies for U.S. companies, doesn’t currently have a specific platform to allow for remote voting in a contested situation.  According to a Broadridge representative, the company, “lacks the technology” to count virtual votes when there are competing director slates. 

Bob Marese, president at MacKenzie Partners Inc., a proxy solicitation firm, said that it could, “be more difficult for proxy solicitors get investors to switch their votes in the lead up to the meeting because many are not in the office, nor are the bankers or brokers they may need to change their vote.” Other potential pitfalls include the inability for shareholders to ask tough questions in a virtual meeting setting. According to the Financial Times (as reported by IR Magazine), investors have become concerned that virtual annual meetings could “shift the balance of power” away from shareholders, as companies have greater control over managing Q&A sessions virtually.

What does the future hold for activist activity? Since many companies have curtailed stock buyback activity in light of the COVID-19 crisis, Lazard believes that activists pressing for return of capital through buybacks will not be a focus. 

Jim Rossman, the head of shareholder advisory at Lazard, believes that, “lower M&A activity and companies focused on conserving cash will mean that activists are likely to increase their focus on operational performance and how management teams react to the crisis as the basis for new campaigns.” He went on to say that activists will likely want to avoid looking overly aggressive during the pandemic as to not offend other investors, “whose help they might need in pushing their case later.” 

Chris Young, managing director and global head of contested situations at Jefferies, also believes overly aggressive activists could face media backlash for seemingly profiting off the pandemic. Young further believes that, “having lived through the prior period of sky-high market volatility, we expect there will be a decline in activist campaigns in the near-term. Once volatility subsides and corporate valuations reset at new normal levels, however, we expect activists could have enough time to initiate new campaigns, including submitting director nominations for proxy season 2021.”

While COVID-19 may be changing the activist landscape in the near-term, the same best practices apply to help make sure your company is ready in the event of aggressive shareholder demands. Analyze your shareholder base and stay in-the-know about changes in ownership, especially during a period of extreme volatility when activists can build positions more cheaply; be open to proactively engaging with investors, even while you hunker down to focus on the impact of the current health crisis and economic downturn; and, think about adopting a “poison pill,” or at least having one at the ready. 

Laurie Berman, lberman@pondel.com

PW’s CEO to Serve as Panelist at Forum for Corporate Directors on February 23

R Pondel small

A focus on board involvement with investors. Roger Pondel of PondelWilkinson will be participating on a panel discussion at the Forum for Corporate Directors exploring the dynamic between board members and investors.

In today’s volatile stock market and increasingly activist investor environment, it is vital that board members fully understand the unfiltered views of investors as they govern theirrespective companies. James Moloney, partner with Gibson, Dunn & Crutcher, will moderate a panel on this critical topic February 23, at the 7 a.m. breakfast meeting of the Forum for Corporate Directors, at the Pacific Club, 4110 MacArthur Blvd, Newport Beach.

Directors who are aware of their investors’ perceptions and expectations are far better equipped to clarify, remedy and reinforce their companies’ messages. The panel will feature Glenn Welling, Founder and CIO of Engaged Capital; Glenn Schafer, Chairman of the Board of Janus Capital Group and Lead Director of Genesis HealthCare; and Roger Pondel, CEO of investor relations consultancy PondelWilkinson.

For more information and reservations, email michelle@fcdoc.org or visit http://fcdoc.org.

 

 

 

 

 

 

Who Do You Trust?

You say “po-tae-tow,” I say “po-ta-tow.” You say “tow-mae-tow;” I say “tow-ma-tow.”

An accent is one thing, but how can two respected financial organizations come to such disparate conclusions? A look at the overview comments by each tells a fascinating story:

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(Photo credit: Wikipedia)

Morgan Stanley, initiating coverage, says “Buy.” And Zacks, on the same day, with the same stock, says “Sell.”

Zacks:

  • “Disappointing results and rising regulatory concerns”
  • “Company has disappointed its investors in each of the last four quarters”
  • “We would advise investors to stay away from this stock for the time being”
  • “Longer-term recommendation of ‘Underperform'”

Morgan Stanley:

  • “Regulatory concerns are overblown”
  • “Compelling entry point”
  • “Underappreciated growth opportunity”
  • “Valuation does not reflect strong growth potential'”

Without mentioning the stock by name, since it is one of our clients, the recommendations just go to show how widely analysts can differ in their assessments of the same security, and how carefully investors should scrutinize recommendations when making investment decisions.

What happened to the stock on the day these opposing recommendations were issued? It went up.

 

Roger Pondel, rpondel@pondel.com 

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Twits and Stones May Break Your Bones

Photo Credit: crunchbase.com

As the year begins to wrap up and office parties kick into high gear, I wonder what next year holds for the world of investor relations.  Proxy access, say-on-pay and XBRL were widely discussed topics throughout the year, but none may have reached the feverous pitch more than the use of social media in investor relations; and that trend will likely continue in the New Year thanks to a recent development.
 
Last week, Yahoo! Finance launched a feature called “Market Pulse,” an area of the site that aggregates feeds or discussions of a particular stock in real-time from StockTwits and Covestor. If you have never heard of StockTwits, just think of it as Twitter for the world of investing. Maybe a little less known is Covestor, a social network for investors that allows them to mirror transactions of other investors.
 
At first glance, I admit that I dismissed StockTwits as nonsensical ramblings by a bunch of “Twits” and Covestor as speculative herd mentality – but I decided to take a closer look.
 
Within a few seconds, I noticed that Dell recently created an official StockTwits page, for which they most likely paid the going rate of $250 dollars a month. Their page had around 45 posts and five followers through last month, and I began to wonder why Dell might have established the account in the first place.  My thoughts:
 

  1. Monitoring online conversations is an important component of reputation management. If you are not engaging with your investor constituencies online, you should at least be listening and ready to respond.
     

  2. As investor audiences increasingly move online, content should be distributed across multiple platforms simultaneously.
     

  3. Companies do not always need a press release or Web cast to communicate with shareholders.  Sometimes it is more efficient and cost effective to express yourself in 140 characters or less.

 
As social media platforms debut and real-time applications evolve, I suspect that in the New Year the investor relations community will have plenty of new services to consider.  While it is important to keep an open mind, one should understand their value and whether they are worth the time and money in the first place.

 

Matt Sheldon, msheldon@pondel.com