Review of Shareholder Activism - H1 2019 - Lazard.com
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JULY 2019
LAZARD'S SHAREHOLDER ADVISORY GROUP
Review of Shareholder Activism - H1 2019
Lazard has prepared the information herein based upon publicly available
information and for general informational purposes only. The information is not
intended to be, and should not be construed as, financial, legal or other advice,
and Lazard shall have no duties or obligations to you in respect of the information.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
Key Observations on the Activist Environment in H1 2019
• In H1 2019, 107 new campaigns targeted 99 companies, down ~25% relative to H1 2018 but in line with the elevated multi-year trend
Campaign Activity in
• Top 10 activists increased their cumulative capital deployed in public activist positions (new and existing)1 from $75.5bn at the end of
Line with Elevated
Q1 2019 to $82.2bn at the end of H1 2019
1 Multi-Year Pace, but
• Starboard’s 10 new campaigns, including three new campaigns in Q2 2019, made them the most prolific activist in H1 2019
~25% Fewer than
Record 2018 − Elliott remains the leading activist in terms of capital deployed, with $3.4bn of new capital deployed in H1 2019 and a total of
$17.4bn deployed in new and existing activist positions
• 46% of all activist campaigns in H1 2019 had an M&A thesis, as activists continue to see transactions as opportunities to generate
M&A Thesis Arising in alpha
2 Nearly Half of All
− Comparatively, from 2014-2018, M&A-related objectives arose in only one-third of all campaigns
Campaigns
• Q2 2019 was characterized by activist opposition to large transactions (e.g., Occidental/Anadarko, United Technologies/Raytheon)
• Activists won 81 Board seats2 in H1 2019, 91% of which came from settlements
• Of the 19 campaigns that went to a final vote in H1 2019, 15 were against non-U.S. targets and activists prevailed in only three
Activists Driving situations
3 Significant Board and • The record 14 long slates nominated in H1 2019 yielded 28 seats out of the 99 seats initially contested, with two of the long slate
Management Change campaigns still ongoing3
• 19% of CEOs of companies targeted by activists left their role within one year of campaign launch, as compared to a baseline
turnover rate of 12% for companies not targeted by activism
Activism Outside the • New campaigns against non-U.S. targets accounted for 45% of global capital deployed in H1 2019, compared to 37% in H1 2018
U.S. Reaches Record
4 Highs, with Japan
• In Europe (20% of H1 2019 global capital deployed), activists focused on smaller targets and M&A theses for new targets
Leading the Way • APAC activism accounted for 18% of H1 2019 global capital deployed, with Japan being the single busiest non-U.S. jurisdiction
• Traditional active managers are no longer waiting until a shareholder vote to make themselves heard on important corporate matters
Active Manager
− In contested situations (e.g., EQT, Bristol-Myers Squibb) they are publicly voicing their opinions on corporate strategy and M&A
5 “Toolkit” for Dissent
− In the absence of an activist campaign, active managers are choosing to act as the activist, even nominating Board slates
Expands Further
(e.g., Neuberger Berman at Verint, M&G at Methanex)
• In H1 2019, numerous companies faced contested shareholder votes on issues surrounding ESG and executive compensation
Top Passive Managers
6 Drive Culture, Purpose
• With increasing shareholder concentration, passive manager statements and policy updates continue to be closely monitored
− State Street’s updated climate change disclosure policy and Vanguard’s change in fund voting were among the most notable policy
and ESG Issues
updates in the first half
Source: FactSet, press reports and public filings as of 6/30/2019.
Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement. 1
1 Based on the market value of activist positions initiated since 2013 in which the activist still holds a stake. Excludes derivatives.
2 Represents Board seats won by activists in the respective year, regardless of the year in which the campaign was initiated.
3 The 28 seats include seven seats won by The Rice Group at EQT after 6/30. The two ongoing long slate campaigns are Vintage/Red Robin and Velan Capital/Progenics.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
1 Campaign Activity and Capital Deployment
($ in billions)
Annual Campaign Activity Quarterly Campaign Activity
1
# of Companies Targeted # of Campaigns Initiated # of Campaigns Initiated1
YTD Companies Targeted 248 Down 25% from
255
2018 but in line with 73
212 70
199 205 H1 mean of 104 65 69
187 226 63
205
57
176 194 190 Mean: 54 52 53 49 50
FY Mean:
200 155 43
192 169 107 40
36 34
105
H1 Mean: 99
100
104 55
5
92 101 95 100 132
-45 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2014 2015 2016 2017 2018 2019 YTD 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019
Capital Deployment in New Campaigns Capital Deployment by Sector in 2019 YTD
Aggregate Value of New Activist Positions2 Aggregate Value of New Activist Positions2 YTD Companies Targeted
$22.0bn deployed compared to H1
mean capital deployed of $31.1bn
23 17 10 11 5 9 10 7 5 2
$25.3 23% 60%
23%
5
Media
Retail
Power, Energy &
Industrials
Consumer
Telecom
Healthcare
Institutions
Technology
Real Estate
$20.9
Financial
$18.7 $19.0 50%
4 18%
$16.5
Infra.
40%
$12.8 $13.5 13%
$11.4 $10.6 3 30%
$7.8 $8.7 2 7% 3% 20%
$5.5 $6.0 $6.0 1%
1 4% 4% $0.7 $0.6REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
1 Notable Q2 2019 Public Campaign Launches and Developments—United States
($ in billions)
Launch Company / Launch Company /
Date Market Cap Activist Highlights Date Market Cap Activist Highlights
• After Eagle Materials refused Sachem Head’s
• Mantle Ridge reportedly considered forming a request for a Board seat, Sachem Head
consortium to make a takeover bid for Aramark nominated two Directors to the Board
5/19 3/19
$8.6 or otherwise push the Company to explore a $3.4 • Sachem Head withdrew its slate after Eagle
sale Materials announced that it would separate its
heavy and light materials businesses
• Without prior public agitation, Legg Mason
announced an agreement whereby it added • Facing a long slate from the activist group, the
Trian’s Nelson Peltz and Ed Garden to its Company appointed nine new independent
Board, along with a third independent Director; Directors and launched a new CEO search
5/19 it was Trian’s second campaign at the 3/19
$3.1 • The two parties later settled, leading to the
Company, following one launched in 2009 $2.2
appointment of an additional four new
• Legg Mason later announced plans to cut its independent Directors
staff by 12%
• Icahn called the Company’s proposed • PG&E announced 10 new Directors and a new
acquisition of Anadarko “hugely overpriced” CEO following consultations with shareholders
5/19 and demanded a shareholder vote on the deal 1/191 • PG&E and BlueMountain later entered into a
• Icahn announced a proxy fight to replace four settlement in which they agreed to appoint an
$44.0 $7.2
Occidental Directors via EGM additional two new independent Directors
• The Rice brothers nominated themselves and
• Neuberger Berman nominated three Directors, five others to EQT’s Board, criticizing EQT’s
urging Verint to pursue a cloud business model performance since acquiring their Company,
and enhance its financial reporting and capital Rice Energy
allocation practices The Rice
4/19 12/18 • The Rice Group received support from ISS and
$4.0 • The activist withdrew its slate after Verint Group
$5.0 top shareholder T. Rowe Price, while Glass
agreed to enhance its financial reporting and Lewis backed management
capital allocation practices and consult
Neuberger on Board refreshment • Post 6/30 update: All seven Rice nominees
elected
• Without any public activist campaign, Cerner
• Following the Company’s announcement of a
announced a settlement with Starboard
merger with Raytheon after its planned spin-off
whereby it appointed four new independent
of its Carrier and Otis businesses, Pershing
4/19 Directors 3/18
$20.4 $97.9 Square sent an email criticizing the merger
• Cerner also committed to disclosing buyback
• Third Point also published a letter criticizing the
and margin targets, and establishing a
deal and said it would vote against approval
committee to oversee these initiatives
3
Source: FactSet, press reports and public filings as of 6/30/2019.
1 Refers to initial announcement of BlueMountain’s campaign. Campaign by Knighthead, Redwood Capital Management and Abrams Capital launched in March 2019 via 13D filing.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
1 Notable Q2 2019 Public Campaign Launches and Developments—Rest of World
($ in billions)
Launch Company / Launch Company /
Date Market Cap Activist Highlights Date Market Cap Activist Highlights
• Trian disclosed a 6% stake in Ferguson and • Fir Tree introduced several proposals at
stated that it would engage management on Kyushu Railway, including three new Directors,
various initiatives to create value a share buyback plan and compensation
6/19 $13.0 3/19 changes
• The investment was made using Trian $5.3
Investors I, a London-listed special purpose • Fir Tree’s proposals were defeated at the
vehicle Company’s AGM
• Mangrove sued TransAlta in an attempt to
• CIAM sent a letter to Renault’s Board, saying
block a C$750mm investment from Brookfield
that it opposed a proposed merger with Fiat
Renewable Partners and launched a withhold
Chrysler, asserting the deal undervalued
6/19 $18.8 3/19 campaign against the Directors who evaluated
Renault and was unfair to shareholders $1.9 the deal
• Fiat Chrysler later withdrew the merger offer,
• ISS and Glass Lewis recommended for the
citing resistance from the French government
entire Board, and all Directors were re-elected
• Elliott disclosed a stake in SAP, saying it was
supportive of a recently announced
comprehensive review and new financial • Elliott confirmed its investment in Bayer and
targets endorsed a Company announcement that it
4/19 12/18
$157.7 was exploring alternatives to settle ongoing
• SAP applauded Elliott’s investment and $59.4
litigation related to its pesticides
announced that it was considering share
buybacks
• Sherborne withdrew CEO Edward Bramson’s
• Third Point announced a $1.5bn stake in Sony nomination for Barclays’ Board shortly before
and released a white paper calling on the the Company’s AGM, after receiving 13%
4/19 $54.8 Company to divest several stakes and 3/18 shareholder support
businesses and focus on its entertainment $49.8
business • Bramson said that he would continue to push
for change at Barclays
• A group of seven investors (including Fidelity • ValueAct sent a public letter to Merlin’s Board,
International and Baillie Gifford) nominated two saying the Company should go private to
Directors to the Company’s Board in the midst facilitate long term investments in its business
4/19 $53.1 of a CEO succession dispute 2/18
• In June, Merlin’s Board recommended in favor
$4.9
• The two dissident nominees were not elected of a takeover offer from a consortium including
at the Company’s AGM Blackstone and the owners of LEGO
Source: FactSet, press reports and public filings as of 6/30/2019.
4REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
1 Top 10 Activists by Market Value of Current Activist Positions
($ in billions)
Despite a slower start to the year, Elliott remains the leader in capital deployed in new campaigns, while Starboard was the most prolific by
number of new campaigns launched New
Campaigns 2019 Target
Activist Market Value of Current Activist Positions1 2019 YTD2 Countries3 Selected Recent Targets
Elliott $3.4 $17.4 6
ValueAct $11.7 -- --
Third Point $1.5 $10.0 2
Cevian $0.8 $10.0 1
Trian $1.0 $9.8 2
Icahn $2.8 $7.2 2
TCI $5.1 -- --
Pershing Square $4.7 -- --
Starboard $1.2 $4.1 Most prolific activist in H1 2019 10
4
Mantle Ridge $2.8 1
2019 Activist Positions Market Value of Activist Positions Launched in 2013-2018
Source: FactSet, press reports and public filings as of 6/30/2019.
Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. 5
1 Based on the market value of activist positions initiated since 2013 in which the activist still holds a stake. Includes publicly disclosed common stock positions only.
2 Number of new campaigns launched, includes positions both open and closed.
3 Based on country of company’s headquarters.
4 Capital deployed does not include any Aramark stake, which has not been publicly disclosed.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
1 Activism’s Broadening Usage and Definition
Amid sustained “first timer” activity, activist investing has grown to encompass numerous types of market actors, either using activist tactics
themselves or as a crucial party to activist objectives
Activism Remains a Popular Tactic for Investors Traditional Active Managers Activist Investors
# of Investors Launching Campaigns
# of “First Timers”
131
109
103
100
93 92
91
Activist
Ecosystem
73 86 Private Equity Funds in 2019 “First Timers”
77
74 68
51 49
29
39
40
30
20 23 23 24
19
12
% of 2012 2013 2014 2015 2016 2017 2018 2019 YTD
Campaigns by
24% 41% 20% 23% 29% 21% 31% 26%
“First Timers”
Source: FactSet, press reports and public filings as of 6/30/2019.
6REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
2 The Activist Role in M&A in H1 2019
Scuttle or Sweeten
Sell the Company Break-Up / Divestiture
Existing Deals
Agitate for sale of target or encourage Agitation for a divestiture of a non-core Entry into a live M&A situation to improve deal terms
industry consolidation business line or company breakup or block an ill-perceived deal from proceeding
32% 33% 35%
Target / Activist M&A Thesis Target / Activist M&A Thesis Target / Activist M&A Thesis
Following pressure from Pershing Square sent an
Mantle Ridge was reportedly
Sachem Head and the email to United Technologies’
evaluating forming a
nomination of two Directors, CEO, criticizing its planned
consortium to make a
Eagle Materials announced merge with Raytheon; Third
takeover bid for Aramark or to
plans to spin off its heavy and Point also came out publicly
push the Company into a sale
light materials businesses against the deal
Third Point urged Sony to
Icahn believed that the
Eldorado Resorts reached an spin off its semiconductor
Occidental-Anadarko
agreement to acquire Caesars business and sell its stakes in
transaction should be taken to
for $8.6bn following pressure Sony Financial, M3, Olympus
a shareholder vote as the
to do so from Icahn and Spotify to focus on its
deal was “hugely overpriced”
entertainment businesses
Corvex and Sachem Head
Following calls from Sachem
Head and Starboard to sell ` Starboard endorsed the
reportedly considered
challenging Centene’s
itself, Zayo announced that it Company’s decision to spin
acquisition of WellCare; Third
had agreed to be acquired by off its Insurance Auto
Point separately urged Centene
Digital Colony Partners and Auctions business
to sell itself; shareholders voted
EQT Infrastructure
to approve the deal
ValueAct issued a letter to
Elliott supported recent Bayer CIAM came out against the
Merlin’s Board, saying the
moves related to ongoing proposed merger between
Company should go private to
litigation, adding that it thought Renault and Fiat Chrysler,
facilitate long-term
its share price was not saying that the deal would
investments; the Board later
reflective of the value of the benefit Fiat Chrysler more
recommended in favor of a
Company’s businesses than Renault
take-private offer
Source: FactSet, press reports and public filings as of 6/30/2019. 7
Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
2 Increased Prevalence of M&A-Related Campaigns
46% of campaigns launched in H1 2019 were M&A driven
M&A Campaigns, 2014-2019 YTD M&A Campaign Objective Prevalence, 2014-2019 YTD
Potentially on pace for ~100 Scuttle or Sweeten Exisiting Deal Break-Up / Divestiture Sell the Company
M&A Campaigns (% of All Campaigns)
60% M&A campaigns in 2019
Number of M&A
Campaigns 51 79 59 76 82 49
50%
30% 32%
46% 33% 33%
40% 41%
40% 39%
36%
Mean: 33% 33%
32% 22%
30% 38% 33%
23%
26%
28%
49%
20%
45%
10% 37% 35%
32% 31%
18%
0%
2014 2015 2016 2017 2018 H1 2019 2014 2015 2016 2017 2018 H1 2019
8
Source: FactSet, press reports and public filings as of 6/30/2019.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
3 Board Seats Won
Board Seats Won1 Non-Activist Employees vs. Activist Employees Appointed as Directors
Board Seats Won1 Non-Activist Fund Employees Appointed
# of Companies Targeted for Board Seats
Activist Fund Employees Appointed
Board Seats Won YTD
161
79 145
68 68 133
57 53
42 103 103
145 796 seats have
Mean: 129 133 161 125 81
changed hands
94 106
103 since 2013
103 81 70 75
64
33 39 39 28 36
17
74 93 71 119 2014 2015 2016 2017 2018 2019 YTD
Activist
2014 2015 2016 2017 2018 2019 YTD Employees 32% 29% 27% 28% 22% 21%
as % of Total
Settlements vs. Proxy Contests Proxy Stage of Board Seat Wins
Board Seats Won1 Board Seats Won through Settlements Board Seats Won1
Board Seats Won through Proxy Fights
161 The majority of Board seats were won
145 outside of the proxy process 7
133
15
103 103
126 81 17
112 127
68 81
89
74
42
35 21 35 7
18 14
2014 2015 2016 2017 2018 2019 YTD
Won through Outside Proxy Proxy Process After Proxy Final Vote Total Seats
Proxy Contest 34% 16% 12% 14% 22% 9% Process Initiated Filing Won
as % of Total
9
Source: FactSet, press reports and public filings as of 6/30/2019.
Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement.
1 Represents Board seats won by activists in respective year, regardless of the year in which the campaign was initiated.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
3 Long Slate Nominations and Proxy Fights
Activists nominating long slates (seeking to replace 50% or more of the Board) often decided to settle for a handful of seats, in line with the
overall trend away from proxy fights in the U.S.
Contested Proxy Votes, 2014-2019 YTD Long Slate Results, 2017-2019 YTD
• Through H1 2019, only four U.S. contested proxy votes occurred, with the majority of • There were 14 long slates nominated in the first half of 2019, with a total of 99 seats
contested votes happening in Europe and Asia initially sought
− Of the four U.S. contested votes (Gannett, PDC Energy, Mack-Cali, • As of the end of the first half, six long slates had settled, four went to a proxy vote,
HomeStreet), activists only won one vote, at Mack-Cali, for four Board seats two were withdrawn and two were ongoing1
− The six long slate campaigns that settled secured approximately three seats on
• Activist campaigns for Board seats in Europe and APAC also met with limited average, versus an average initial demand of nine seats
success, with activists securing Board seats in two of 15 proxy vote situations
− Two of the four long slates that went to a proxy vote (FirstGroup, EQT) remained
(Superdry, COMET Holding AG)
long slates at the time of the vote; in the other two cases (Mack-Cali, Gannett),
the activist revised its slate to a minority slate prior to the final vote
19 − Only one long slate campaign (EQT) actually resulted in a majority of Directors
U.S. Proxy Votes Non-U.S. Proxy Votes
being replaced in the final vote
16 4
Board Seats Initially Demanded Board Seats Won
99
14 14
Two long slates accounting for 11
contested Board seats remain ongoing1
11
10 67
7
12
13 15
7
11
7
12 30
4 281
3
1 11
2014 2015 2016 2017 2018 H1 2019 H1 2017 H1 2018 H1 2019
Source: FactSet, press reports and public filings as of 6/30/2019. 10
Note: Long slates defined as instances where an activist nominated Directors to replace 50%-plus of the incumbent Board.
1 The 28 seats include seven seats won by The Rice Group at EQT after 6/30. The two ongoing long slate campaigns are Vintage/Red Robin and Velan Capital/Progenics.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
3 U.S. CEO Turnover Within One Year of Activist Campaign Launch
From 2014-H1 2018, annualized CEO turnover at activist-targeted U.S. companies was 19%, versus a baseline rate of 12% for non-activist
targets
CEO Turnover at Activist-Targeted U.S. Companies CEO Turnover at Activist-Targeted U.S. Companies by Industry, 2014-H1 2018
Activist-Targeted Company Turnover Rate CEO Resignations within One Year of Campaign
Turnover Rate at Non-Target Companies
Number of CEO Resignations at Targeted Companies 22
17
14 13
Annualized CEO turnover between 2014 and H1 2018 of 19% 12
9
28 6 5 5
25%
Media
Retail
Industrials
Healthcare
Consumer
Institutions
Technology
Real Estate
Power, Energy
Financial
& Infra.
21 21
20% % of Targeted
Companies with
18 19% 24% 15% 26% 33% 22% 20% 21% 9% 8%
Turnover
16% CEO Turnover at Activist-Targeted U.S. Companies by Market Cap
15
14% $2bn and Under $2bn-5bn $5bn-20bn $20bn+
4%
4% 4% 6% 6%
9%
22% 18%
29% 27%
26%
21%
13% 26%
12% 12% 12%1 21% 28%
10%
61% 55%
48% 46% 39%
2014 2015 2016 2017 H1 2018
Total U.S.
Companies 131 130 110 110 74
Targeted by
2014 2015 2016 2017 H1 2018
Activists
Source: FactSet, press reports and public filings as of 6/30/2019. 11
Note: Based on the number of instances where a CEO resigned within a year of an activist campaign announcement, or vice versa for campaigns following CEO resignations. Baseline rate calculated
as annualized CEO turnover at Russell 3000 constituents with market caps above $500mm.
1 2018 annual rate of turnover.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
4 H1 2019 International Shareholder Activism
($ in billions)
New activist activity has declined in Europe as activists focus on existing positions, while activism in APAC remains at elevated levels
Activism Against European Companies1 Activism Against APAC Companies1
YTD Capital Deployed $22.1 YTD Capital Deployed
# of Campaigns Initiated # of Campaigns Initiated
$16.4 75 75
65 65
58
52 55 55
$10.4 $10.4
45 45
40
42
$7.9 35 35
30
27
22 25 25
19 $6.4 $5.2
16
14 13
15 $3.8 15
8
$2.3
5 $1.4 5
$3.9
$5.1 $7.8 $2.9 $11.6 $10.2 $4.4 $1.0 $1.2 $0.3 $4.5 $3.1
-5 -5
2014 2015 2016 2017 2018 2019 YTD 2014 2015 2016 2017 2018 2019 YTD
% of Global % of Global
Capital 16% 18% 26% 35% 25% 20% Capital 2% 4% 13% 10% 8% 18%
Deployed Deployed
Source: FactSet, press reports and public filings as of 6/30/2019.
Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. APAC includes all of Asia and 12
Australia and New Zealand.
1 Calculated as of campaign announcement date for all publicly disclosed common stock stakes. Does not include derivatives.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
4 European Activism in 2019 – “Sweet Spot” is Shifting
($ in billions)
In H1 2019, activists were less focused on the traditional $1bn-10bn “sweet spot” for targets, instead shifting towards smaller companies
Campaigns by Market Capitalization1 in Europe
54%
Average 2016-2018 2019
Activists shifting to smaller,
simpler campaigns
37%
26% 26%
21%
16%
9% 11%
$500mm-1bn $1-10bn $10-20bn $20bn+
• Campaigns to scuttle or sweeten
announced deals comprised 57% • Capital allocation issues and Board • Attempts to scuttle or sweetened • Wide range of objectives, including
Primary
of small cap campaigns composition commonly criticized announced deals most common strategic alternatives, operations,
Themes
2019 Activism
• Board change also common, • Many campaign objectives unclear divestitures and governance
appeared 43% of the time
Prominent
Activists Remains the most
prominent large cap activist
Source: FactSet, press reports and public filings as of 6/30/2019.
Notes: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. 13
1 Calculated as of campaign announcement date.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
4 Performance of European Targets
($ in billions)
While 2018 was the “Year of New Targets” with record campaigns launched, many of those targets underperformed their relevant index,
leading to a change in target selection in 2019, which is paying off with materially higher outperformance
2018 Targets1 2019 YTD Targets2
Median 2018 TSR vs. Index3 Median 2019 YTD TSR vs. Index3 Median 2019 YTD TSR vs. Index3
+2.0% (6.7%) (0.6%)
(7.5%) (17.1%) +8.7%
(3.5%) (8.9%) (1.1%)
Rest of Rest of
Europe +2.7% (5.5%) Europe +1.7%
• 2019 targets have performed better than 2018 targets in H1
• During 2018, activists were unsuccessful in creating value against the benchmark index in 2019, with strong results in Germany
Germany and France • However, UK and French targets (over half of European
• This trend has worsened in 2019, with accelerating underperformance in all regions campaigns) continue to slightly underperform their
respective index
Source: FactSet, press reports and public filings as of 6/30/2019.
Notes: All data is for campaigns conducted at companies with market capitalizations greater than $500 million at time of campaign announcement. 14
1 Including all the campaigns launched during 2018.
2 Including all the campaigns launched during 2019 YTD.
3 TSR adjusted for the performance of the local index during the period of campaign.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
4 Shareholder Activism Advancing in Japan
Activism in Japan reached new highs as a record number of companies also faced shareholder proposals
Non-U.S. Activism, H1 2019 Campaigns Against Japanese Targets
By Number of Campaigns By Capital Deployed Total Campaigns 16
H1 Campaigns
Japan Rest of World
21% 17% Japan
Rest of World South Korea 29% 11
29% 8%
8
United Kingdom Canada
18% 13%
Germany 4 4
France 19% 7
2
8% Canada
2 3 3
13%
South Korea United Kingdom 2014 2015 2016 2017 2018 H1 2019
11% 14%
Notable 2019 Public Campaign Developments and Shareholder Votes—Japan
• Fir Tree Partners submitted • A group of investors called for a • ISS and Glass Lewis • ISS and Glass Lewis
proposals to Kyushu Railway, special meeting to oust the recommended that shareholders recommended that shareholders
calling for a share buyback plan, Chairman/CEO and vote against reappointing Nissan’s vote against reappointing • In June, Third Point disclosed a
new Board structure, three new President/COO; both officials CEO, citing his close relationship Nomura’s CEO and Chairman; the $1.5bn stake in Sony, publicly
Directors, and a new Director resigned in April 2019 with the Company’s former Company had been penalized for urging the Company to spin off its
compensation plan • Later, a former LIXIL CEO and Chairman, who was arrested on mishandling Tokyo Stock semiconductor business, divest its
• Starwood Capital Group and current Director nominated a charges of financial misconduct Exchange information stakes in several units and focus
other investors publicly dissident slate of eight nominees • Nissan’s current CEO was re- • Both Nomura’s Chairman and on its core entertainment
supported Fir Tree’s proposals • The dissident slate was elected to appointed, but shareholders voted CEO were reappointed with ~60% businesses
• Shareholders voted down Fir the Board, along with six for new independent nominations support, down from over 90%
Tree’s proposals management candidates and compensation committees support in the past five years
15
Source: FactSet, press reports and public filings as of 6/30/2019.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
5 The Expanding Active Manager “Toolkit” for Dissent
In the first half of 2019, traditional active managers built on their vocal approach, publicly asserting their views on major corporate events and
using activist tactics to influence strategy
Shaping the Debate
Company / “’As the Company’s largest shareholder, we understand the serious responsibility
Active Manager Commentary before us to make a decision that serves the long-term interests of EQT and its
investors,’ said David J. Wallack, portfolio manager of the T. Rowe Price Mid-Cap
• Wellington publicly opposed Bristol-Myers Squibb’s Value Fund. ‘We have long been admirers of the founders and leaders of Rice
planned acquisition of Celgene, citing risks with the deal Energy. They bring a data-driven, thoughtful, nimble and innovative approach to
and its cost, causing the Company’s stock to fall over 8% the E&P industry that we believe will produce substantial benefits if they are
• Shareholders approved the acquisition in April 2019, with applied across the EQT platform.’… ‘This magnitude of change for the EQT
24% voting against the deal; ISS and Glass Lewis board is appropriate and necessary,’ said Mr. Wallack. ‘We are hopeful that
recommended voting for the deal this transformed board, with its mix of experienced and new directors, will foster a
new culture at the Company that is more accountable, results-oriented, dynamic
and transparent.’”
• T. Rowe Price, the largest shareholder of EQT, issued a
press release stating that it would vote for a dissident long -“T. Rowe Price Supports Rice Group Nominees In EQT Contest,” July 2019
slate put forward by the Rice Group (emphasis added)
• EQT’s AGM is scheduled for July 10, 2019
Launching Activist Campaigns
Company /
“In our view, Verint’s reluctance to embrace a cloud business model, inefficient
Active Manager Commentary
conglomerate structure, elevated operating expenses, poor capital allocation
• M&G nominated four Directors to Methanex’s Board, citing practices and misaligned executive compensation programs have all contributed
governance issues at the Company and concerns over a to the Company’s persistent underperformance. Responsibility for Verint’s long-
planned factory standing failure to move with urgency to improve its performance and adopt clear
business and financial performance targets lies with the current Board of
• The parties settled for two new, M&G-approved independent
Directors. This Board has simply been unwilling to make the changes that
Directors and Methanex agreed to appoint a financial
are necessary to correct Verint’s course.
advisor to review its planned factory
• Neuberger Berman nominated three Directors to Verint’s This is why we have reached the conclusion that Verint will benefit from
Board, citing the Company’s share dilution resulting from its additional perspectives in the boardroom provided by independent,
capital allocation strategy, as well as its poor governance experienced, senior-level software business leaders.”
• The investor withdrew its slate in June 2019 after Verint
-“Neuberger Berman Files Proxy Statement Seeking to Replace Three Verint
pledged to improve its financial reporting and capital
Directors,” May 2019 (emphasis added)
allocation practices and discuss Board refreshment
Source: FactSet, public filings and press reports as of 6/30/2019. 16REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
6 Shareholders Are Using Their Vote to Send a Message to Management
Shareholders used their AGM votes to voice displeasure with recent strategic initiatives and executive compensation, while increasing
support for select ESG-related proposals
Support for ESG Proposals Flashpoints on Executive Compensation Frustration with Recent Transactions
• In 2018, Netflix eliminated its short- • In June 2018, Bayer closed its
term incentive program in favor of base Monsanto acquisition; the Company
• In May 2019, 57% of Newell Brands
salary and vested stock options then faced potential liabilities relating
shareholders voted in favor of a
to several Monsanto products
proposal urging the Board to produce • 50% of Netflix shareholders voted • In April 2019, 56% of shareholders
an Employment Diversity Report against the Company’s “Say-on-Pay” voted against ratifying management’s
• The proposal claimed that Newell proposal, citing a lack of performance- conduct in 2018, symbolically
lagged its peers in setting diversity based compensation rebuking the Company
goals for its leadership team − 39% of shareholders voted against
the same proposal in the year prior
• In March 2019, 45% of Starbucks • In May 2019, 45% of PayPal
shareholders voted for a resolution shareholders voted against the • Occidental structured its proposed
calling for a progress report on Company’s “Say-on-Pay” proposal, acquisition of Anadarko Petroleum so
sustainable packaging initiatives; the citing concerns with the magnitude of a the deal would not require a
proposal alleged that the Company one-off $29mm equity award given to shareholder vote
had reneged on previous goals the CEO • In May 2019, 60% of shareholders
voted to lower the ownership
− In 2018, 35% of shareholders voted − In 2018, 12% of shareholders voted
threshold to call a special meeting
in favor of a similar resolution against the same proposal
• In 2018, Luxottica and Essilor
• In May 2019, 42% of Duke Energy completed their planned merger; the
• In May 2019, 43% of Gap shareholders
shareholders voted in favor of a deal drew concerns over the new
voted against the Company’s “Say-on-
proposal urging the Company to Company’s governance and power-
Pay” proposal, citing concerns with a
publish a report on the public health sharing between the new, joint
$10mm retention grant given to the
risks of coal use executive team
CEO
− ISS recommended that • In April 2019, a group of investors
− In 2018, 2% of shareholders voted
shareholders vote in favor of the nominated two Directors; the two
against the same proposal nominees received 44% and 34%
proposal, citing regulatory concerns
shareholder support
Source: FactSet, public filings and press reports as of 6/30/2019. 17REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
6 As Shareholder Concentration Increases, Passive Manager Policies Garner Focus
Shareholder concentration has continued to drive focus on the policy changes of the “Big Three,” especially as they refine their ESG policies
S&P 500 Top 10 Shareholders
# Shareholder Ownership Stake and Cumulative Holdings “’We believe proxy voting is a great way to integrate investment stewardship
responsibilities with investment management practices,’ Vanguard Chairman and
1 Vanguard 8.2% Chief Executive Officer Tim Buckley said. ‘Our external managers are well
positioned to take on proxy voting responsibilities in a manner that supports
2 BlackRock 6.7% 15.0% shareholder value creation over the long term.’”
-Vanguard, “Vanguard funds plan to grant proxy voting responsibilities to external
3 State Street 4.5% 19.5%
managers,” April 2019
4 Capital Group 3.3% 22.8%
5 Fidelity 2.4% Top 5 25.2%
“Guidance for Directors on Evaluating Climate Risk and Preparedness of a
6 T. Rowe Price 1.9% 27.1% Company
Analyze sector and company exposure to the different climate risks, inquire if the
7 Geode Holdings 1.3% 28.4%
company has adequately mitigated potential risks, and assess the potential impact
on the company’s long-term strategy under different scenarios on a periodic basis.”
8 Northern Trust 1.3% 29.7%
-State Street Global Advisors, “Climate Change Risk Oversight Framework for
9 Wellington Management 1.2% 30.9% Directors,” June 2019
10 JPMorgan Chase 1.0% Top 10 31.9%
Q1 2019 S&P 500 Top 10 Shareholder Concentration by Sector1
S&P 500 Average (47%) “While a long-term strategic framework may remain relatively consistent over time,
53%
49% 48% 48% 47% 47% 47% 47% it is likely that detailed implementation plans will change in light of new
46% 45% 43%
information. It is helpful to shareholders to have an explanation of how
management has evolved the implementation and why. A good understanding
ensures investor support for management even when events have resulted in the
company missing projected targets and having to deviate or modify
implementation plans.”
-BlackRock, “BlackRock Investment Stewardship’s approach to engagement on
Financials
Energy
Industrials
Utilities
Consumer
Healthcare
Consumer
Telecom
IT
Real Estate
Services
Materials
Staples
long-term strategy, purpose, and culture,” January 2019
Disc.
18
Source: FactSet, public filings and press reports as of 6/30/2019.
1 Includes institutional and insider ownership.REVIEW OF SHAREHOLDER ACTIVISM - H1 2019
Shareholder Advisory Group—Key Contacts
Managing Director and
Jim Rossman (212) 632-6088 jim.rossman@lazard.com
Head of Shareholder Advisory
Mary Ann Deignan Managing Director (212) 632-6938 maryann.deignan@lazard.com
Andrew T. Whittaker Managing Director (212) 632-6869 andrew.whittaker@lazard.com
Managing Director and
Rich Thomas +33 1-44-13-03-83 richard.thomas@lazard.com
Head of European Shareholder Advisory
Dennis K. Berman Managing Director (212) 632-6624 dennis.berman@lazard.com
Christopher Couvelier Director (212) 632-6177 christopher.couvelier@lazard.com
Kathryn Night Director (212) 632-1385 kathryn.night@lazard.com
Todd Meadow Director (212) 632-2644 todd.meadow@lazard.com
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