STRATEGIC AND LEGAL ISSUES IN ACTIVIST SITUATIONS

R&C: What do you consider to be the most significant developments in the shareholder activism space over the past 12 months or so? To what extent has activism grown during this period?

Langston: If you look solely at the numbers, activist campaigns did not increase in 2019 compared to the past couple of years, but the numbers do not provide the full picture. One of the most significant developments is the percentage of board seats being acquired via private company settlement as opposed to publicly waged proxy fights. Activists won fewer than a dozen director seats in full-fledged proxy fights in 2019 but gained over 160 seats through settlements during the same period. These kinds of numbers indicate that companies are realising that proxy contests are often long-term losses, in terms of economic outlays in a proxy contest, shareholder value, reputation and distraction from long-term strategy. At the same time, many activists have understood that companies often react more collaboratively when approached non-publicly, and companies are more likely to engage, and in many cases, act on some of the activist’s proposals outside of the public spotlight.

Katz: Shareholder activism has continued to grow over the last 12 months, although campaigns have become more complicated. Large companies continue to be targeted, although there has been a shakeout on the activist side, as the large successful activists have continued to raise funds but the smaller activists are finding it increasingly difficult to survive in this market and a number have closed. One of the primary drivers of activism, companies with capital allocation issues, are increasingly hard to find, so activists are turning to operational activism, which is much harder to accomplish and takes significantly more time to be successful. In addition, activists are currently seeing a backlash from the increased focus on ‘long-termism’ as opposed to the short-term approach that many, but not all, activists are guilty of.

Jan-Mar 2020 Issue

Cleary Gottlieb Steen & Hamilton LLP

Skadden, Arps, Slate, Meagher & Flom LLP

Wachtell, Lipton, Rosen & Katz