Friday, March 28, 2008

Motorola Takes Steps to Appease Icahn

When it comes to activist campaigns at super-sized technology companies like Motorola Inc., patience is the name of the game, especially when you're Carl Icahn. The megatechnology company said Wednesday it will split into two independent, publicly traded companies, thus separating its struggling mobile-phone business from its broadband and mobility-solutions operations.
This, of course, is a large part of what Icahn wanted. But even with victory, Icahn continues to agitate for change at Motorola, whose stock is still in the doldrums at around $10 a share. Icahn wrote a letter to Motorola that despite its agreement to split the company up he still wants management to install a candidate, Keith Meister, he had put up for election to the board in a proxy contest. Meister directs funds controlled by Icahn. Icahn also raised questions about Motorola's decision to wait until 2009 to complete its breakup plans.
And this contest was not the first time Icahn pressed for changes at Motorola. Icahn started his public efforts in 2007 by launching a proxy contest to nominate a director candidate for the board of Motorola, which had a stock market capitalization at the time of $42 billion. Icahn lost his campaign, but it was close -- he received 717 million votes while the incumbent director attained 931 million.
This was considered a major loss for Icahn, but was it really? Motorola agreed to cut 7,500 jobs, saving it roughly $600 million, in what can be argued was a partial response to Icahn. The restructuring continued when Motorola's CEO Ed Zander resigned.
Icahn himself hiked his stake to 6.3% and took his campaign into high gear. He launched a new proxy contest at the Schaumburg, Ill., company in an attempt to secure records relating to the hiring of senior executives and corporate strategy, especially regarding its mobile-devices business. The raider-turned-activist spoke to institutional investors at a Riskmetrics event in New York on Feb. 6 about activism in general -- but his real goal was to gain support for his insurgency at Motorola. His effort to gain their support appears to have worked -- its impossible to win an activist campaign at a large capitalization company without the support of institutions.
Icahn's success prompted other activist type investors to back his endeavors, and more institutions privately backed his campaign. One of the more interesting supporters is YouTube activist Eric Jackson, who launched his own effort.
Jackson last year used a YouTube video he dubbed "Plan B for Motorola" to attract support from other micro-investors. Like Icahn, Jackson wanted Zander gone, much of the board replaced and a new head of Mobile Devices with a clear strategy. He got the backing of roughly 150 investors with about $600,000 in shares, less than 1% but significant nonetheless. "They didn't move quickly enough, so starting late last year, we started saying that the best course of action, given the extent of the problems in the company, was to break it up," Jackson said.
And now Icahn is still pressing for changes. He still must be patient. - Ron Orol

Monday, March 24, 2008

Glass Lewis on CtW's activist effort at Morgan Stanley

Proxy advisory firm Glass Lewis & Co.’s recommendation Monday on Morgan Stanley is a mixed bag for an activist labor union backed fund.
CtW Investment Group, an organization that advises pensions for unions belonging to the Change to Win labor group, on March 12 had launched a “just vote no’ campaign, calling on investors to vote against Morgan Stanley chief executive John Mack from his role as chairman of the brokerage firm. They also wanted to see investors vote against two other directors, Robert Kidder and Howard Davies at the company’s scheduled April 8 annual meeting.

Glass Lewis gave the investors a split decision, recommending against the re-nomination of Kidder and Davies, but opting to support the company’s decision to keep Mack in the position of board chairman. The advisory firm said Mack’s removal would be too much for the company: “We believe shareholders should support Mr. Mack’s continued tenure,” Glass Lewis reported. “Simply put, we believe that additional turnover at the CEO position would not serve their best interest at this time.”

Ctw have a different perspective. This is what they had to say March 12: “We believe the circumstances surrounding these risk management failures demonstrate the need for stronger independent leadership at Morgan Stanley. Consistent with best governance practice, we believe John Mack should not serve simultaneously as Chairman and CEO, and are urging shareholders to vote “Against” Mr. Mack to convey that message to the Board.”

This is what they had to say about Davies and Kidder: “We believe that directors Davies and Kidder failed to maintain the integrity of Morgan Stanley’s risk management, and thus bear central responsibility for the firm’s $9.4 billion in subprime-related write-downs in 2007.”

Wednesday, March 19, 2008

Barington Dillard's Campaign Steps Up

Activist investor Barington Capital Group LP has taken its insurgency at Dillard’s Inc. up a notch Wednesday by nominating a minority slate of four director candidates to the department store chain’s 12 person board.

One of the candidates is Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, and a known governance expert.

The likelihood that Barington would launch a proxy contest at the Little Rock, Ark.-based company was high after the hedge fund on March 4 asked Dillard’s to provide a list of shareholders. Having a list of shareholders enables Barington to reach out to other investors and gain support for their proxy contest.

The activist group was founded by director James Mitarotonda, who early in his career was a Bloomingdale's employee. Barington and its partner, the Clinton Group, together own a 5.2%.

Other activist investors and shareholders interested in backing either Barington or the incumbent board still have an opportunity to buy shares. The annual meeting is scheduled for May 17 and shareholders that have a stake as of March 31 are eligible to vote shares at the meeting.

In addition to Elson, the Barington nominees include Mitarotonda, Nick White and
Eric S. Salus, who both have retail backgrounds.

The activists are recommending operational and strategic improvements, such as eliminating its dual-class stock structure, which gives the founding family control over the chain; evaluating its senior management team, which is overseen by the founding family; and shuffling the company's real estate portfolio by closing underperforming properties. The activist funds also would like to see the company complete a sale-lease back of owned properties, a typical tactic considered by activist investors seeking to have corporations raise capital for other purposes such as stock buybacks or special dividends. -- Ron Orol

Monday, March 10, 2008

Activsts Target Corporations That Provide The News

Under pressure from activist investors K Capital Management LLC of Boston, newspaper group Sun-Times Media Group Inc. announced last month it was considering a sale of assets. K Capital, the company's largest shareholder, with a 9.7% stake, has been one of the most vocal advocates for a sale. Last month, the hedge fund demanded a "radical restructuring" of the board and repeated its demands for a sale. A sale may soon be forthcoming, but don't expect this to be the last news organization to be targeted by activists.

K Capital Management is one of a growing number of activist hedge fund managers targeting newspapers, wire services and other news media corporations over the past couple years. Since 2005, Knight Ridder Inc., Time Warner Inc., CNet Networks Inc., Reuters Group plc and The New York Times, all corporations that provide news, have all become the focus of activist hedge fund managers.

Some common activist arguments associated with their campaigns: the newspaper industry has had a difficult time of late with revenue growth as advertising dollars migrate away from traditional newspapers to the Internet and other media. Meanwhile with new media companies, the complaint is that they haven't captured the ad dollars quick enough.

The most high profile activist hedge fund success in recent years is Private Capital Management's campaign to press Knight Ridder Inc. to auction itself to the highest bidder. By November 2005, Private Capital held an 18.9% Knight Ridder stake. Shortly after that Southeastern Asset Management Inc. converted its passive stake into an active 13D. By June 2006, the activists got what they really wanted when Knight Ridder completed an auction and closed a deal to sell itself to Sacramento, Calif.-based newspaper publisher McClatchy Company for $4.5 billion.

Another recent high profile activist campaign is taking place at the New York Times Co., where Harbinger Capital Partners and Firebrand Partners LLC, alleging a flawed digital strategy, have been seeking to nominate a minority slate of director candidates to the board. Separately, activist investor Jana Partners has been agitating for change at CNET Networks Inc., a San Francisco-based media and technology news company.

Jana Partners has also taken on Time Warner Inc., following in Carl Icahn's footsteps. Icahn launched an effort to have the media giant split up, but only succeeded at having the New York based company expand its stock buyback program, repurchase $20 billion in shares by the end of 2007 and cut $1 billion in costs. Icahn told CBS's 60 Minutes in a program that aired Sunday that despite the fact he didn't succeed in having the company split up, he still faired ok. "It's a little bit of he who laughs last. I mean, well you know, maybe I made a mistake but I made $300 million on it. So is that too bad? Okay. I mean you know, so I guess I was wrong," he told 60 Minutes.

Meanwhile in 2007, Children's Investment Fund turned its attention to news and data information provider Reuters Group plc, a financial data provider and newswire service, which later agreed to merge with Thomson Corp. for $17.2 billion. The deal was approved by federal regulators in February, and is expected to close soon.

Recent insurgencies at Yahoo! Inc. show that even with new technology media organizations, this trend of activist funds taking on news organizations is here to stay. - Ron Orol

Thursday, March 6, 2008

Shareholder List Key to Barington's Dillard's Campaign

After launching a public activist campaign to press for changes at department store chain Dillard’s Inc. last month, Barington Capital Group LP has taken their insurgency up a notch.

The activist group, founded by director James Mitarotonda, on Tuesday afternoon asked Dillard’s to provide it with a list of shareholders, according to a filing with the Securities and Exchange Commission.

The request indicates to many observers that Barington and its partner, the Clinton Group, who together own a 5.2% stake, are on the verge of launching a proxy contest to install director candidates to the Little Rock, Ark.-based company’s board. (Having a list of shareholders enables Barington to identify reach out to other investors and gain support for their endeavors).

The company has a duel-class stock structure which gives the founding family control over the chain and eight of its 12 board seats. But Barington and Clinton may seek to put a minority slate of directors on the company’s board.

Analysts at Credit Suisse seem to think so as well.

“We estimate that as of 12/31/07, 12% of Dillard’s shares outstanding were held by institutions that could be classified as potential activists. With Dillard’s proxy statement to be filed in late April and annual shareholders meeting usually scheduled for mid-May, we believe there is likely to be an attempt from activist holders to acquire at least one independent directors’ seat. While company insiders control 2/3 of the voting stake, the reminder that there exists a vocal minority could attract some attention to these shares,” a March 4 Credit Suisse report wrote. -- Ron Orol

GenCorp Activist Effort Drags On

A five year old activist campaign by activist investor Steel Partners at GenCorp. Inc. shows that insurgencies are not all short-term affairs.

One month after Steel Partners resurrected an activist push at the Rancho Cordova, Calif.-based aerospace conglomerate with a proxy contest to install six directors, Steel Partners and GenCorp. late March 5 settled up- the latest step in a campaign that has lasted since 2002. Steel Partners agreed to drop its proxy contest and in return GenCorp agreed to install three Steel Partners nominees including the activist fund’s manager, Warren Lichtenstein. They replace three incumbent directors that management nominated for the company’s March 26 annual meeting.

Lichtenstein argues in a Securities and Exchange Commission filing that he had been seeking to reach some sort of settlement with the company which makes rocket propulsion systems and components, but was unsuccessful. The proxy contest was a "last resort," the filing added.

The activist investor offered $700 million in 2004 to buy GenCorp, after attacking the conglomerate for its subpar financial performance and questioning the company's dealmaking record. After GenCorp rejected the offer, Lichtenstein launched his first proxy contest. In consultation with Steel Partners, GenCorp agreed to add a corporate governance expert to its board, in return for which Lichtenstein dropped his proxy contest. As part of the deal, Lichtenstein was permitted to send a nonvoting representative to GenCorp's board meetings.

Steel Partners isn't the only activist battling GenCorp management. Sandell Asset Management Corp., which owns a 6.9% GenCorp stake, launched its public insurgency at the company in March 2005. That year Sandell requested that GenCorp make more changes to improve governance and also sell a chemicals unit. Sandell Asset portfolio manager Thomas Sandell said in letter addressed to GenCorp's board (and included in a recent government filing) that he wants the company to remove a raft of anti-takeover defenses, among them a poison pill and staggered board elections, which make it difficult to mount change-of-control proxy contests. He wants annual elections for the whole board. Sandell also wants GenCorp to allow large stakeholders to call special shareholder meetings.-- Ron Orol