Eye of the Storm: The Dynamics of Activism Defense
RC Domain 1: IR Strategy Formulation, Domain 2: IR Planning, Implementation and Measurement and Domain 10: Corporate Governance
Summary by Mary Jo Bohr
Speaker: Bill Anderson, Senior Managing Director, Evercore
Case Study Presentation: Lisa Ciota, President/Founder, Lead-IR Advisors, Inc.
KEY TAKEAWAYS:
No company wants to be caught flat-footed when an activist appears – but many companies are. Session participants discussed how to prepare for and respond before, during and after a fictional activist campaign in a case study. The session was informed by commentary and insights from Bill Anderson, a pioneer in activism defense at both Goldman Sachs and Evercore, where he leads its activism/raid defense business and strategic shareholder advisory practice. His credentials include defending over 300 companies over the course of his career; he is currently advising companies representing approximately $1 trillion in market value.
Before an activist appears
Anderson said activist activity levels continue to be high, and even best-in-class companies are being targeted. The number of activist funds continues to increase and, to enhance their short-term returns following years of underperformance, actively managed funds are increasingly supporting activists.
Prepare for activism by critiquing your company from a shareholder’s perspective. Just how good is your executive team, your board, your strategy, your financial performance? What are your vulnerabilities? How could someone else extract more value? This “risk management” exercise can instill urgency and sharpen the focus of both executives and directors.
More suggestions:
- Keep tabs on investor sentiment to prevent being caught off guard by a groundswell of support for action based on specific concerns about your company, such as performance or governance.
- Anticipate different activist scenarios and how to deal with them.
- Have a written response plan that identifies resources (such as a short list of key outside advisors who don’t have a conflict of interest), communications, contact information, timelines, etc.
When an activist engages
Companies generally will meet with activists – just like any other shareholder. Indicate that you’ll study their issues and get back to them. You even might ask them to sign a non-disclosure agreement.
A company’s initial response to an activist is crucial, Anderson said. “In the rush to get something out, less is usually better.” In particular, “don’t get drawn into a public tit-for-tat with the activist,” which can be tough to do if the activist goes public and says something nasty and/or erroneous. Anderson advised “resetting the narrative” and articulating your substantive position so you can take control of your story. Avoid generic holding statements that often signal to the Street that you’re not prepared to respond with specifics. For public statements, have a draft at the ready – preferably, one that’s free of self-flattery. “It’s all about the substance of your message.”
Also:
- Activate your stock watch.
- Do some sleuthing. Know what ISS and research analysts are saying about your company.
- Look at your cost of capital and at potential break-ups.
- Enlist research analysts, index funds and other passive investors for information and support. Anderson said the biggest index funds – BlackRock, Vanguard and State Street – “can be a check against short-term activists.”
- Engage a proxy solicitor to help you organize a roadshow, but the company should be the principal communicator to its shareholders.
- Consider joining the Council of Institutional Investors to stay current on governance and shareholder issues important to investors.
- Even if you take action that somewhat satisfies an activist’s immediate concerns, don’t assume the activist will go away. “If activists achieve a break-up and haven’t yet made their target return, make sure your management knows that the activist may come back and advocate for a sale of the company the following year.”