John’s blogged on DealLawyers.com that activist hedge funds don’t actually do much to improve company performance. But according to a SquareWell Partners survey, the perception – at least among “active” asset managers – is that these funds are a useful market force, even if they have a short-term, selfish interest.
For that reason, it’s becoming more common for asset managers to align with activists on proxy fights and proposals if they agree with the substance of the activist’s argument – especially on governance & strategic matters. Here’s some interesting takeaways that can help you form alliances when you need them (this was also a topic covered earlier this week in our DealLawyers.com webcast – “How to Handle Hostile Attacks” – stay tuned for the transcript):
– 81% of investors expect companies to engage after they’ve analyzed the analyst’s arguments & formed a strategic response – i.e. don’t rush into a “PR War” – but also know that investors will engage with an activist even before the campaign is public
– 64% of active managers expect to engage with independent directors
– Investors consider a number of factors when assessing a targeted company – the top ones are company performance versus peers, management & board quality, and engagement history – they also look to broker reports, proxy advisors, media outlets & social media
– Investors are mixed on whether poor TSR is a dealbreaker – they’ll also consider ratios that show profitability, efficiency, debt & liquidity
– In addition to capital allocation decisions, active managers are most attuned to governance issues such as collective board expertise, board independence, chair quality and executive pay
-Liz Dunshee, TheCorporateCounsel.net July 19, 2019
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