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CEOs targeted more by activists but give them fewer board seats
[BOSTON] Chief executives at US corporations were targeted by money managers and activist investors telling them how to run their businesses more than ever last year.
Activists, including Jeff Smith's Starboard Value LP and Paul Singer's Elliott Management and others who normally do not weigh in on corporate affairs, asked for board seats at 212 companies in 2016, according to data released on Wednesday by research group Activist Insight.
That marks a 14 per cent increase in the number of companies targeted from 2015, when investors asked for seats at 186 corporations. In 2014 they targeted 154 companies, up from 113 in 2013, the data shows.
"There are more activists involved and more companies are being targeted," said Eleazer Klein, a partner who co-chairs law firm Schulte Roth & Zabel's Shareholder Activism Group.
"And the trend toward settlements has continued, in part because companies recognise the credibility of activists," he added.
Whether they push for management changes, spin-offs or share buy backs, corporate agitators are finding that captains of industry are more often ready to see their point of view.
Last year 63 per cent of requests for board seats ended in a settlement, up from 54 per cent in 2015. Only 31 per cent of the situations developed into full-blown proxy contests, down from 39 per cent in 2015 and 42 per cent in 2014.
Last year Starboard settled with Yahoo for board seats, William Ackman's Pershing Square negotiated seats at Chipotle and Paul Hilal's Mantle Ridge appears to be making inroads to give Hunter Harrison a chance to run railroad CSX.
By settling, investors and companies save money and the distraction a proxy fight can cause. Those are both key considerations as activists show improved returns with the HFRI Activist Index up 10.4 per cent in 2016 after a more modest 1.15 per cent return in 2015.
Investors often come away with fewer board seats than they might have before. The data show investors won 215 board seats in 2016, down from 221 in 2015. The average board seat gained through a settled proxy contest shrunk to 1.4 last year, down from two seats in 2015.
If a full blown proxy contest occurs, the data show they are now more likely to lose. Last year management won 12 times, compared with eight wins for investors.
Shareholders sided with iRobot against hedge fund Red Mountain and securities firm FBR & Co beat back a challenge from Voce Capital Management.