Thursday, April 30, 2015

Nick Graziano Launching New Activist Fund

According to a Wall Street Journal report, Nick Graziano is planning to launch an activist hedge fund next year.

He left Corvex earlier this year and also had stints at Omega, Sandell, and Icahn. Interestingly, Corvex was backed by George Soros, and Keith Meister who founded Corvex, also worked at Omega Advisors under Soros.

Dimensional Fund Advisors Sends Warning to Directors Who Support Poison Pills

Big fund firm blacklists directors who support poison pills

13 hours ago
By Jessica Toonkel
NEW YORK, April 29 (Reuters) - A major funds company is putting directors on notice: if you adopt poison pill anti-takeover measures without shareholder approval, you will be blacklisted.
Since October, Dimensional Fund Advisors, the eighth largest U.S. mutual fund firm with $398 billion in assets, has been sending warning letters to companies whose stock it owns and who have adopted the measures without shareholder approval.
In the letters, the Austin, Texas-based money manager warns that it will vote against directors who approved those measures - not just at the company with the poison pills, but at every company they serve - unless they remove those pills or put them up for shareholder vote. The campaign, which hasn't been previously reported, will eventually target 250 companies.
DFA is worried that companies too often use the measures to deter acquirers and shareholder activists who could benefit shareholders, said Joseph Chi, the firm's co-head of portfolio management.
DFA appears to be the first major fund group to blacklist individual directors across its portfolios for such conduct. That may be a sign parts of the funds industry are taking a tougher line against boards who don't do what the funds want. Some of the largest U.S. fund managers have also recently been pressuring companies to make it easier for shareholders to nominate board candidates.
The measures DFA opposes can include pills which allow other shareholders the right to buy shares at a discount if one investor buys more than a certain amount of the company. Another example would be a pill that gives shareholders of a company being acquired the right to buy shares in the combined company after a takeover, again at a discount. These kinds of measures act as a disincentive to anyone seeking to buy a company by making it more difficult and by raising the costs of any deal.
While DFA has had the policy as part of its corporate governance stance since 2012, until now the firm has allowed exceptions primarily because companies said they were not aware of it, Chi said. After sending the letters it is pursuing the policy more aggressively with individual directors, he said.
Chi declined to say how many directors DFA has voted against so far. He said 10 companies have agreed to remove their pills or let them expire since they received the letters, though he declined to identify them.
"It is a very strong stance by DFA," said Aeisha Mastagni, investment officer at the California State Teachers' Retirement System (CalSTRS), the second largest U.S. pension fund, which has also opposed poison pills but hasn't put such a target on individuals.

DFA is taking aim at companies with any type of poison pill that was brought in without shareholder approval. The one exception is if a measure is designed as a tax maneuver to protect tax benefits generated by net operating losses.

The firm's tactic could impact scores of small and mid-sized firms in Dimensional portfolios that have poison pills in place, said Brandon Rees, deputy director of the Office of Investment of the labor union umbrella group AFL-CIO.
DFA owns shares in 170 of the 185 Russell 3000 companies with poison pills that DFA objects to, according to an analysis conducted by Lipper of ISS Quickscore data.
In the past year, at least one company, communications products company Sonus Networks, has removed its poison pill after DFA targeted one of its directors at another company where she served on the board. DFA had a 3 percent Sonus stake as of December 31, according to Thomson Reuters data.
In February 2014, DFA voted against Beatriz Infante on the board of Emulex Corp, a Costa Mesa, California-based network connectivity provider, where DFA is the third biggest shareholder. That was eight months after Sonus extended a poison pill that had been set to expire.
In September 2014, Sonus announced it was removing its poison pill a year ahead of schedule. There is no evidence that DFA's stance resulted in Sonus' decision to get rid of the pill early.
Chi declined to comment on specific companies it has targeted. A Sonus spokeswoman declined to comment. Infante did not return calls.
Companies that could be affected by DFA's stronger stance include Spartan Motors, a builder of specialty vehicles, where DFA is the third largest shareholder, and managed care provider Health Net Inc, where it is fifth biggest, according to Thomson Reuters data.
Both firms have active poison pills adopted without shareholder approval and directors that serve on multiple boards. For example, Hugh Sloan is chairman of Spartan and is on the board of Manulife Financial. Health Net director Mary Anne Citrino is on the board of retailer Dollar Tree Inc. Spokesmen for Health Net and Spartan said their directors were not available for comment.
Health Net's board will discuss DFA's letter at its next meeting, a spokesman said. The company's poison pill is set to expire in July 2016.
A spokesman for Spartan Motors said the company had not received the letter yet and declined to comment further.
Not everyone thinks DFA's personal arm twisting will intimidate directors.
"I can't imagine other investors will say 'I am going to vote against this director even though I like what they are doing at this company,'" said Jack Schuler, who is on the board of a number of publicly traded healthcare companies, none of which are being targeted by DFA.
Investors on occasion target individual directors - sometimes referring to them as "no fly" directors - but it is unusual to see a company do it so systematically, said Patrick McGurn, special counsel for proxy adviser Institutional Shareholder Services.
At CalSTRS, Mastagni said she thinks DFA's tactic could backfire by inadvertently targeting those who are privately fighting against poor corporate governance measures like the poison pills. "They could be the ones in there asking the tough questions," she said.
(Reporting By Jessica Toonkel; additional reporting by Ross Kerber in Boston and Nadia Damouni in New York; Editing by Linda Stern and Martin Howell)

Wednesday, April 29, 2015

Wachtell Lipton: Some Lessons from DuPont-Trian

Some Lessons from DuPont-Trian
                        The ISS Report on the DuPont-Trian proxy contest calls attention to a number of important insights into ISS policies and practices and those of many of its institutional investor clients.  Concomitantly, these policies illustrate the realities of the sharp increase in activist activity and the steps corporations can, and should, take to deal with the activist phenomena. 
                        ISS and major institutional investors will be responsive to and support well-presented attacks on business strategy and operations by activist hedge funds on generally well managed major corporations, even those with an outstanding CEO and board of directors. 
                        Trian Fund Management and its founder, Nelson Peltz, have clearly established credibility and acceptability.  So too other well regarded funds like ValueAct.  They have become respected members of the financial community. 
                        An activist who attempts to work behind the scenes with a corporation to advise and achieve changes will have more credibility than one who surfaces with an attack. 
                        In most cases a corporation will be well advised to meet with the activist and discuss the activist’s criticisms and proposals, which are frequently presented in the form of a well-researched whitepaper.  If the activist’s recommendations are not unreasonable, careful consideration should be given to adopting some or all, thereby avoiding a public dispute.  In situations where the activist seeks board representation to pursue its objectives, depending on the circumstances it may be the best course of action to consider agreeing to board representation on condition of an appropriate standstill agreement.
                        Major institutional investors like BlackRock and Vanguard want direct contact with the independent directors of corporations.  Waiting to establish investor-director contact until under an activist attack is too late.  Meaningful director evaluation has also become a key objective of institutional investors and a corporation is well advised to have it and talk to its investors about it.  Regular board renewal and refreshment can be important evidence that meaningful director evaluation is occurring.  In the DuPont situation, ISS did not accept DuPont’s argument that the addition of two “super star” directors to its board, after the attack started, obviated any reason to add Mr. Peltz and one of his nominees. 
                        If a corporation disputes an activist’s counter whitepaper it needs to make a compelling case; failure to do so will result in ISS following its policy of generally supporting a dissident short slate.  ISS’s question, “Have the dissidents made a compelling case that change is warranted?” becomes “Has the corporation made a compelling case that change is not warranted?”  Note the not so subtle shift of the burden.
                        Finally, in some cases even winning a drawn out proxy battle can be more damaging to a corporation than a reasonable settlement with acceptable board representation. 

Martin Lipton

Bloomberg: DuPont Activist Trian Wins Partial Backing From ISS

Trian Fund Management, the activist investor that has called for a breakup of DuPont Co., won the backing of Institutional Shareholder Services Inc. for two nominees in its fight for seats on the chemical maker’s board.

DuPont shareholders should vote for Trian Chief Executive Officer Nelson Peltz and John H. Myers, a former CEO of General Electric Asset Management, as well as eight DuPont directors listed on the activist’s proxy card, ISS said Monday in a report. The proxy advisory firm also said votes should be withheld for Trian’s other two nominees.

“This is not a broken company - but there is compelling evidence that the dissidents are onto something in their critique,” ISS said.

ISS is one of the most influential firms that dispense corporate-governance advice to fund managers. Today’s recommendations stop short of a full endorsement of Trian’s campaign. The activist has sought a breakup of the 212-year-old company and the elimination of what it says are $4 billion of excess corporate expenses.

“The ISS recommendation was predictable,” said Damien Park, head of Hedge Fund Solutions LLC, which compiles data on activism. “They will typically suggest shareholders vote for one or two dissident nominees when a compelling case for change has been made.”

Read the entire article on Bloomberg

Tuesday, April 28, 2015

Barry Rosenstein Interview on the New Wall Street Week and His Reaction to Larry Fink's Letter

The all new Wall Street Week, episode 2, featured an interview with activist investor, Barry Rosenstein of Jana Parnters.  He started his fund in 2001 with $17 million and now manages over $11 billion.

When asked about his reaction to Larry Fink's controversial letter he wrote to CEO's, Barry said:
"We started talking about it and the first thing [Fink] said to me was, ‘You know, everybody interprets this as my being anti-activist – I’m not.’ And I don’t think he was."
"I think he’s just saying the companies shouldn't knee-jerk, just return capital. They ought to determine what the best return on invested capital is."

Ex-Icahn Exec Suggests Internap Explore a Sale

RDG Capital Recommends Internap Explore a Potential Sale or Merger to Maximize Shareholder Value.

RDG Capital - which is run by the former President of Icahn Associates, Russell Glass, issued a press release suggesting INAP could be worth $16-$19 per share in a sale transaction.   The stock is currently trading around $10.40/share.

The full text of RDG's letter, including a list of potential buyers, can be found here.

Thursday, April 23, 2015

Lead Activist Lawyer Leaving to Run Morgan Stanley Defense Team

We've confirmed the rumor that David Rosewater, one of the country's leading activist investor lawyers, is switching sides and heading to Morgan Stanley to run its activist defense team.

David is a Partner at Schulte Roth & Zabel and has advised numerous activists over the past several years, including Trian, Jana Partners, Clinton Group, Sandell Asset Management, Orange Capital, The Children's Fund, Casablanca Capital and many others...

Bloomberg: Activist Investor Jesse Cohn Isn’t Bluffing Anymore

Cohn, who runs U.S. activist investments at hedge fund Elliott Management, is infamous throughout technology board rooms for offering to acquire a company to force an auction -- a tactic that has proved lucrative. Now, he’s starting an Elliott Management private-equity strategy that will give those offers an added heft, people with knowledge of the matter said.

WSJ: Proxy Adviser ISS Blesses Pay for Activist’s Directors at Dow

Gives “cautious support” to two directors Third Point placed on Dow board

In 2013 ISS addressed the Dissident Director Compensation Bylaws which were at the time being implemented by several companies at the direction of prominent law firms like Wachtell Lipton.

Brookfield Affiliate to Acquire Associated Estates for $28.75 per Share in Cash

Background to the activism (from HFS’ daily activist report):

11/17/2014 Land and Buildings announced plans to nominate 7 people to AEC's board

1/26/2015 Land and Buildings announced it will hold a conference call on January 28 11am EST with 2 of the 7 directors it has nominated to the board 800-745-8951

1/28 Land and Buildings issued a presentation highlighting opportunities to unlock value at AEC

2/9 Land and Buildings sent a letter to the Chair and CEO of AEC commenting on its recent meeting

2/27 Land and Buildings issued a press release calling for real change and highlighting the potential upside for shareholders under a reconstituted board

3/12 Land and Buildings announced it was nominating three candidates to the board

4/8 Land and Buildings sent a letter to AEC shareholders highlighting why change is necessary and seeking support for its three director nominees

4/15 Land and Buildings issued a letter calling for a re-balancing of the board in favor of shareholders' interests  

4/22 AEC announced a deal to be sold to Brookfield Asset Management for $28.75/share 

For a free 1 month trial to the daily activist report contact Troy Marchand at

Wednesday, April 22, 2015

FREE Activist Investing Research

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Click Here to get the activist research report for the week ending April 17, 2015

Associated Estates Realty
Land and Buildings
Dakota Plains Holdings
Lone Star Value
diaDexus, Inc.
Leap Tide
Deutsche High Income
Bulldog Investors
The Eastern Company
Barington Capital
Essex Rental Corp
Casey Capital
ICTV Brands, Inc.
Norman Pessin
iPass, Inc.
iPass Shareholders for Change
Integrated Silicon Solutions
Starboard Value
JDS Uniphase Corporation
Sandell Asset Management
The Macerich Company
Land & Buildings; Orange Capital
Myers Industries
GAMCO Investors
Qualcomm Incorporated
Jana Partners
River Valley Bancorp
Thomas Davee
Rovi Corporation
Engaged Capital
Rosetta Stone, Inc.
Nierenberg Investment Mgmt
Chemical & Mining of Chile
SailingStone Holdings
Tempur Sealy International
H Partners
Canell Capital
Wynn Resorts
Elaine Wynn