Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Shira Stein
Sixty-five public companies cited “shareholder activism” as a risk factor in SEC filings during the first six months of 2017, more than five times as many during the same period three years ago, according to a Bloomberg BNA analysis.
Companies are showing increasing awareness and concern about the potential costs of activism even as the rate of growth of activist campaigns has slowed.
The trend “speaks to the fact, not just that there is a lot of activism out there, but that boards and public companies are aware of the pervasive threat of activism,” Jeff Gramm, owner of hedge fund Bandera Partners LLC and author of “Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism,” told Bloomberg BNA.
Companies disclose risk factors in their financial reports to help shareholders and potential investors understand the risks they face. Bloomberg BNA examined Securities and Exchange Commission periodic reports, including annual filings, quarterly filings, and filings for events or changes between quarterly reports, in the first six months of 2008 to 2017.
The companies that cited shareholder activism as risks in 2017 range from real estate management and development company Forest City Realty Trust to Oxford Industries Inc., the owner of the Tommy Bahama and Lilly Pulitzer clothing lines, to clinical-stage biotech company Mirati Therapeutics Inc.
The market valuations of the 65 companies that listed shareholder activism as a risk factor in 2017 range from $45 million to $27.2 billion. Of those companies, over half are small-cap companies, less than one-third are mid-cap, with only a few being large-cap.
Some list shareholder activism as a risk factor as a preemptive measure against future attacks, while others, like Darden Restaurants Inc., are driven by having been a prior target for activists.
“It’s just gotten to be something that everybody has got to be conscious of,” instead of only companies with low-performing stock, Bonnie Roe, a New York-based partner at Cohen & Gresser LLP who advises clients on SEC compliance and mergers and acquisitions, told Bloomberg BNA.
Corporate boards and C-suites are worrying more about shareholder activism, Roe said. “More people are conscious of the fact that their own corporate strategy could be derailed by an activist coming in.”
In addition, proxy fights can be expensive, distracting for management, result in the loss of long-term gain, and push the company in a “negative” direction, Kai Liekefett, a New York attorney who heads Vinson & Elkins LLP’s Shareholder Activism Response Team, told Bloomberg BNA.
Activism can be helpful for companies—for example, shareholder-driven cost cutting at Bank of New York Mellon Corp. led to improved profitability. However, that’s not always the case.
“Not all activism is good, and not all activism increases shareholder value, but the threat of activism in the system and the accountability that it provides to companies is good,” said Gramm, who’s also an adjunct professor at Columbia Business School.
The “best defense from activism is to know your vulnerabilities” and communicate those vulnerabilities to shareholders, Gramm said.
Companies now are more prepared for activists, corporate attorneys told Bloomberg BNA.
“I do think boards are doing a much better job on the whole” with being prepared for shareholder activism, Douglas Schnell, a Palo Alto, Calif.-based attorney who leads Wilson, Sonsini, Goodrich & Rosati’s shareholder activism practice, told Bloomberg BNA.
“They’re engaging more with shareholders, they’re thinking about shareholder activism more,” Frank Aquila, a New York-based M&A partner at Sullivan & Cromwell LLP, told Bloomberg BNA.
Data from FTI Consulting shows that the growth rate of activist campaigns has slowed over the last three years. Fifty-six percent of activists surveyed expected the volume of activism in 2017 to remain the same as 2016, according to an Activist Insight and Schulte, Roth & Zabel report. Thirty-two percent of respondents expected an increase in volume.
Many large-cap companies have already been or currently are targets of activism, so some activists are turning their attention to mid-cap or small-cap companies, according to a separate report by Activist Insight, Schulte, Roth & Zabel, and FTI Consulting.
To contact the reporter on this story: Shira Stein in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)