Friday, February 25, 2011

Activists beware!

The SEC may soon move to require activist hedge fund managers to disclose more quickly the stakes they take in companies whose management they are trying to shake up. Good for companies, bad for activists. Check out my article here at MarketWatch.

Wednesday, September 16, 2009

Activist investors are very likely to like Mary Schapiro

As head of the Securities and Exchange Commission, Mary Schapiro has already taken a bunch of steps to help activist shareholders-- both institutional and hedge funds -- expand their efforts. For one thing, Schapiro finally moved to axe ballot stuffing, after the SEC has waffled on the issue for years. Brokers will no longer be able to cast a vote for management's slate with uninstructed retail shares. That could shift the outcome of "Just Vote No" campaigns against particular directors in the case of some large companies, such as Bank of America, where there is a huge retail vote.

At the same time, the SEC is taking action also after years of inaction to give shareholders more say in corporate board elections. The ever contentious "shareholder access" proposal is expected to be enacted next year, giving shareholders the ability to nominate one or two director candidates to a corporate board on the corporate proxy. This, however, is unlikely to discourage big activists like Carl Icahn from running their own slates. Nevertheless, it could make it easier for labor-backed pension funds to put their candidates up for election.

Congress is quickly moving to enact 'say on pay' legislation that would give investors an ability to have a nonbinding vote on executive compensation-- all that could influence their behind-the-scenes dealmaking ability. Once the economy recovers, expect activist investors to use this leverage to press companies into deals or stock buyback initiatives. The legislation has already passed the House Financial Services Committee. Expect it to be a key part of bank reform legislation that will be approved by early 2010.

Majority voting for directors is also in legislation on Capitol Hill. Majority voting, which already takes place on a company by company basis, would require directors to receive more than 50% of the vote of participating investors. Right now management backed nominees need only one shareholder vote to win-- a director can vote one share they own themselves for themselves and presto! they're back in.

All this is going to make it easier for activist investors to press for their interests. You think the environment is already expanding for shareholder activism? Watch out, with Schapiro and a financial crisis in tow, big changes are coming.

Wednesday, January 7, 2009

New SEC chairmwoman was activist backer

Activist hedge fund managers may like Mary Schapiro.

The soon-to-be Securities and Exchange Commission chairwoman was a solid shareholder activist during her stint as a commissioner at the agency. So much so that governance fund manager Ralph Whitworth said "She has been a stanch and long-time supporter of shareholder rights."

RiskMetrics Inc. Director Patrick McGurn said: "You have to put [Schapiro] on the progressive side of the scale when it came to initiatives for shareholders.”

President-Elect Barack Obama chose Schapiro in December to run the controversial and embattled agency, which is likely to be restructured in response to the financial crisis.

Between 1988 and 1994, Schapiro was an independent commissioner at the SEC. During that period, the agency was headed by GOP chairmen David Ruder and Richard Breeden, and later by Democratic commissioner Arthur Levitt.

In my book I talk about how that period was critical for shareholder empowerment. Breeden, who now runs an activist hedge fund, pushed through a number of investor-empowering rules with Schapiro's critical backing. Schapiro's support for shareholder initiatives at the time indicates that she may be supportive of some major pro-investor proposals as chairwoman.

In the early 1990s, Schapiro voted to have the SEC adopt a number of rules expanding the amount of communications investors could have with each other. It also freed up communications between investors and reporters. The rules allowed investors to vote against a management proposal or director candidates as long as they didn't try to nominate their own director candidates.

She also endorsed a provision introduced by Breeden known as the short-slate rule that allowed investors to split their vote between management-nominated directors and candidates put up by dissident activist investors.

"More than a decade later, this measure was critical in establishing the world of activist hedge funds and other insurgent investors," McGurn said. "She [Schapiro] was critical to the effort to keep that controversial provision in the final shareholder communications reform package."

While at the SEC, she also backed a measure that expanded the amount of disclosure executives were required to provide about their compensation plans. Those disclosure rules were expanded in July 2006.

Thursday, November 6, 2008

Shifting SEC

The Securities and Exchange Commission will be a key regulator as Washington continues to restructure itself in response to the expanding financial crisis.

SEC Chairman Christopher Cox has called for a combination of the agency and the Commodities Futures Trading Commission, a key part of Paulson’s blueprint for regulatory reform.

Whether the agencies do combine, it won’t be under Cox’s watch. Arthur Levitt, SEC chairman during 1993 to 2001, is a potential pick for chairman. FINRA CEO Mary Schapiro is another potential choice because of her extensive experience working at both the CFTC and SEC. “To combine both these agencies you need someone with experience at both places,” said one securities attorney.

Another possible SEC chair pick is John Olson, a partner at Gibson Dunn LLP and former head of the American Bar Association’s business law section’s committee on Corporate Governance. Ex. SEC commissioners Harvey Goldschmid, Roel Campos and Annette Nazareth, are all possibilities. It would be easier for Obama to anoint an existing commissioner to the chair position. Elisse Walter, who is on the commission, could fit the bill. Lower level but still very important division chiefs at the SEC are on their way out too. John White, who heads the SEC’s corporate finance division, is expected to step down, leaving the hefty task of figuring out how to create a new derivatives disclosure regime to his successor. Stanley Keller, a partner at Edwards Angell Palmer & Dodge LLP could replace White. -- Ron Orol

Wednesday, November 5, 2008

Congressional Shifts on Capitol Hill

When Democrats lost seats in the 2002 midterm congressional election, then House Minority Leader Richard Gephardt quietly decided not to run for re-election for that position.

With Republicans losing House seats in both 2006 and 2008, expect GOP members to push for changes to their leadership. That could mean the ouster of House Minority Leader John Boehner, R-Ohio, or GOP Whip Roy Blunt, R-Mo. Possible replacement candidates include Reps. Paul Ryan, 38, R-Wisc. and Eric Cantor, 45, R-Va., both lawmakers that led a high profile ultimately unsuccessful effort to topple Treasury Secretary Henry Paulson’s $700 billion government purchase plan. According to Darryl Nirenberg, deputy chair in Patton Boggs public policy department, Cantor and Ryan may see the losses in their party as an opportunity to step up. The Republican study committee, a conservative caucus within the Republican party, now has a strengthened position for GOP lawmakers, Nirenberg contends. Previous members Tom Delay and Richard Cheney have gone on to strong positions within the Republican party. Opposition to Paulson’s package emerged from this committee.

One glimmer of positive news for Republicans was the re-election of Senate Minority Leader Mitch McConnell, R-Ky. McConnell understands the intricacies of the parliamentary rules on Capitol Hill and legislative observers expect that he is best positioned to protect GOP interests in the Senate. His ouster would likely have meant the installation of the less experienced Sen. Jon Kyl, R-Arizona, to the position.

On the Democratic side, look for Sen. Christopher Dodd, D-Conn., to remain chairman of the Senate Banking Committee, a panel that will be at the center of restructuring on Capitol Hill. Less likely is for Dodd to decide to be chair of the prestigious Senate Foreign Relations Committee, where vice president-elect Joe Biden is leaving a vacancy. Sen. Daniel Inouye, D-Hawaii, may take over the Senate Appropriations Committee (after the ouster of Sen. Robert Byrd, D-Va.) leaving the position of Senate Commerce Committee chairman to John Rockefeller, D- WV. All this may leave Sen. Chuck Schumer, D-NY., as chair of the prestigious and powerful Senate Rules Committee.

As far as Obama’s administration. Expect quick movement. According to the Washington Post, Rahm Emanuel is deciding whether he wants to be President-Elect Barack Obama’s chief of staff. Rahm may choose to stay on in Congress where he could one day replace House Speaker Nancy Pelosi.

Once Obama’s chief of staff is chosen, expect his White House staff and cabinet officials to be chosen quickly, in the next couple weeks.

Key cabinet official appointments should be made before Thanksgiving. The choice of Treasury Secretary, arguable the most important cabinet level job, should go to either New York Federal Reserve Bank President Timothy Geithner or New Jersey Gov. Jon Corzine, at least according to Stan Collender, managing director at Qorvis Communications in Washington. Larry Summers, a former Treasury Secretary during the Clinton Administration, is also in the running. -- Ron Orol

Thursday, September 11, 2008

Sun Times Under More Pressure

Already under pressure from activist investors K Capital Management LLC of Boston, Sun-Times Media Group Inc., which announced in February it was considering a sale of assets or a privatization, is now facing a second activist investor.

On Wednesday, Davidson Kempner Advisers Inc. announced an activist tack at the owner of the Chicago Sun-Times, the latest news company to be targeted by activist hedge funds. K Capital, the Sun-Times' largest shareholder with a 9.7% stake, has been a vocal advocate for a sale.

Davidson Kempner, a 5.9% Sun-Times holder, on Wednesday evening said in a Securities and Exchange Commission filing it has had and will continue to have discussions with "third parties and other shareholders and management regarding [Sun-Times], its prospects and potential means for enhancing shareholder value. In these discussions, [Davidson Kempner] may suggest or take a position with respect to future plans for the company, including, without limitation, potential changes in the business, strategy, operations, board composition, management or capital structure of the Issuer as a means of enhancing shareholder value."

The filing doesn't mention whether the two firms are working together, but Davidson Kempner's filing makes it clear that it certainly would be open to talking to a number of investors. - Ron Orol

Thursday, August 28, 2008

Steel Partners closer to Goal at Point Blank

Activist turned private equity investor Warren Lichtenstein is one step closer to his goal of buying body armor maker Point Blank Solutions Inc. or having it consider strategic options, including a sale.

The insurgent, who manages the New York-based activist fund Steel Partners, took five of seven board seats on the $153 million stock market capitalization company in a proxy contest on Tuesday. The Pompano Beach, Fla.-based company's market capitalization is roughly half its size compared to a year ago, and its former Chief Executive has been arrested on charges of fraud.

"We continue to believe that Point Blank should not remain a standalone company competing on uneven terms against much larger competitors in a weakening market," Lichtenstein said in a statement. "Steel Partners is committed to maximizing stockholder value by exploring all strategic alternatives, including possible sale of all or a portion of the Company on the most favorable terms available to Point Blank stockholders."

Steel Partners, which has a 9.6% Point Blank stake, offered last year to buy the company for $281 million. The company rejected the bid.

Steel Partners, traditionally known for pushing companies to auction themselves or find other means of improving shareholder value, is no stranger to bidding or buying companies. The activist fund, together with Newcastle Partners, another hybrid activist and buyout shop manager, acquired Fox & Hound Restaurant Group in 2006. The two funds later acquired Champps Entertainment Inc. In addition to restaurant chains, Steel Partners focuses a large chunk of its activist efforts on defense industry companies. In 2004, the fund unsuccessfully bid to buy aerospace engineering systems manufacturer GenCorp. Inc.