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February 22, 2021 |
M&A Report – 2020 Year-End Activism Update

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This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the last date of trading in 2020) during the second half of 2020. Announced shareholder activist activity increased relative to the second half of 2019. The number of public activist actions (35 vs. 24), activist investors taking actions (31 vs. 17) and companies targeted by such actions (33 vs. 23) each increased substantially. On a full-year basis, however, owing to the market disruption caused by the COVID-19 pandemic, 2020 represented a modest slowdown in activism versus 2019, as reflected in the number of public activist actions (63 vs. 75), activist investors taking actions (41 vs. 49) and companies targeted by such actions (55 vs. 64). During the period spanning July 1, 2020 to December 31, 2020, two of the 39 companies targeted by activists—CoreLogic, Inc. and Monmouth Real Estate Investment Corporation—were the subject of multiple campaigns. CoreLogic, Inc. was the subject of an activist campaign led by Cannae Holdings and Senator Investment Group; their efforts, in turn, ultimately drew the support of Pentwater Capital Management LP. In addition, certain activists launched multiple campaigns during the second half of 2020: Elliott Management, NorthStar Asset Management and Starboard Value. These three activists represented 23% of the total public activist actions that began during the second half of 2020.

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*Study covers selected activist campaigns involving NYSE- and Nasdaq-traded companies with equity market capitalizations of greater than $1 billion as of December 31, 2020 (unless company is no longer listed). **All data is derived from the data compiled from the campaigns studied for the 2020 Year-End Activism Update.

Additional statistical analyses may be found in the complete Activism Update linked below. 

The rationales for activist campaigns during the second half of 2020 changed in certain respects relative to the first half of 2020. Over both periods, board composition and business strategy represented leading rationales animating shareholder activism campaigns, representing 55% of rationales in the first half of 2020 and 49% of rationales in the second half of 2020. M&A (which includes advocacy for or against spin-offs, acquisitions and sales) took on increased importance; the frequency with which M&A animated activist campaigns rose from 9% in the first half of 2020 to 19% in the second half of 2020. At the opposite end of the spectrum, management changes, return of capital and control remained the most infrequently cited rationale for activist campaigns. (Note that the above-referenced percentages total over 100%, as certain activist campaigns had multiple rationales.) These themes are all broadly consistent with those observed in 2019. Proxy solicitation occurred in 14% of campaigns for the second half of 2020 and for 17% of campaigns in 2020 overall. These figures represent modest declines relative to 2019, in which proxy materials were filed in approximately 30% of activist campaigns for the entire year.

Eight settlement agreements pertaining to shareholder activism activity were filed during the second half of 2020 and only 17 were filed for the entire year, which continues a trend of diminution (relative to 22 agreements filed in 2019 and 30 agreements filed in 2018). Those settlement agreements that were filed had many of the same features noted in prior reviews, however, including voting agreements and standstill periods as well as non-disparagement covenants and minimum and/or maximum share ownership covenants. Expense reimbursement provisions were included in half of those agreements reviewed, which is consistent with historical trends. We delve further into the data and the details in the latter half of this Client Alert. We hope you find Gibson Dunn’s 2020 Year-End Activism Update informative. If you have any questions, please reach out to a member of your Gibson Dunn team.

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Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm’s New York office:

Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Andrew Kaplan (+1 212.351.4064, akaplan@gibsondunn.com) Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com) Daniel S. Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com) Lisa Phua (+1 212.351.2327, lphua@gibsondunn.com)

Please also feel free to contact any of the following practice group leaders and members:

Mergers and Acquisitions Group: Jeffrey A. Chapman – Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover – Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne – Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com)

Securities Regulation and Corporate Governance Group: Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney – Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

© 2021 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 9, 2020 |
M&A Report – 2020 Mid-Year Activism Update

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This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the close of trading on June 30, 2020) during the first half of 2020. As the markets weathered the dislocation caused by the novel coronavirus (COVID-19) pandemic, shareholder activist activity decreased dramatically. Relative to the first half of 2019, the number of public activist actions declined from 51 to 28, the number of activist investors taking actions declined from 33 to 10 and the number of companies targeted by such actions declined from 46 to 22.

By the Numbers – H1 2020 Public Activism Trends

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Additional statistical analyses may be found in the complete Activism Update linked below. 

The decline in shareholder activism activity brought concentration among those investors engaged in activist activity during the first half of 2020. For example, during the first half of 2020, NorthStar Asset Management launched six campaigns and Starboard Value LP launched four campaigns. Three activists represented half of the total public activist actions that began during the first half of 2020.

In addition, as compared to the first half of 2019, activists turned their focus away from agitating for particular transactions as the animating rationale for the campaigns they launched. While changes in board composition remained the leading rationale for campaigns initiated in the first half of 2019 and the first half of 2020, M&A (which includes advocacy for or against spin-offs, acquisitions and sales) and acquisitions of control, which served as the rationale for 24% and 8%, respectively, of activist campaigns in the first half of 2019, declined to 9% and 0%, respectively, in the first half of 2020. By contrast, advocacy for changes in governance, which emerged in 6% of campaigns in the first half of 2019, became the principal rationale for 28% of campaigns in the first half of 2020. Business strategy also remained a high-priority area of focus for shareholder activists, representing the rationale for 22% of campaigns begun in the first half of 2019 and 24% of campaigns begun in the first half of 2020. The rate at which activists engaged in proxy solicitation remained consistent at 24% in the first half of 2019 and 21% in the first half of 2020. (Note that the percentages for campaign rationales described in this paragraph sum to over 100%, as certain activist campaigns had multiple rationales.)

Publicly filed settlement agreements declined alongside the decrease in shareholder activism activity. Nine settlement agreements were filed during the first half of 2020, as compared to 17 such agreements during the first half of 2019. Nonetheless, the settlement agreements into which activists and companies entered contained many of the same features noted in prior reviews, including voting agreements and standstill periods as well as non-disparagement covenants and minimum and/or maximum share ownership covenants. Expense reimbursement provisions appeared in two thirds of the settlement agreements reviewed, which represented an increase relative to historical trends. We delve further into the data and the details in the latter half of this Client Alert.

We hope you find Gibson Dunn’s 2020 Mid-Year Activism Update informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

Gibson Dunn 2018 Year-end Activism Update - Click here for complete update


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office:

Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com) Daniel S. Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com) Jessica L. Bondy (+1 212.351.3802, jbondy@gibsondunn.com)

Please also feel free to contact any of the following practice group leaders and members:

Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com)

Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 11, 2020 |
M&A Report – 2019 Year-End Activism Update

Click for PDF This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the last date of trading in 2019) during the second half of 2019. Announced shareholder activist activity declined relative to the second half of 2018. The number of public activist actions (24 vs. 40), activist investors taking actions (17 vs. 29) and companies targeted by such actions (23 vs. 34) each decreased substantially. The slowdown was in contrast to the first half of 2019, during which period shareholder activism activity was robust. On a full-year basis, however, 2019 represented a slowdown in activism versus 2018, as reflected in the number of public activist actions (75 vs. 98), activist investors taking actions (49 vs. 65) and companies targeted by such actions (64 vs. 82). Despite the overall decline in shareholder activism activity, certain trends continued unabated. During the period spanning July 1, 2019 to December 31, 2019, two of the 23 companies targeted by activists—Instructure, Inc. and Occidental Petroleum Corporation—were the subject of multiple campaigns. The activism campaign launched by activist Carl Icahn against Occidental Petroleum Corporation was supported by activist Krupa Global Investments. In addition, certain activists launched multiple campaigns during the second half of 2019: Carl Icahn, Elliott Management, Land & Buildings, Sachem Head Capital Management and Starboard Value. These five activists represented 42% of the total public activist actions that began during the second half of 2019.

By the Numbers – H2 2019 Public Activism Trends

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Additional statistical analyses may be found in the complete Activism Update linked below.  The rationales for activist campaigns during the second half of 2019 remained consistent with those in the first half of 2019. Over both periods, M&A, board composition and business strategy represented the most frequent rationales animating shareholder activism campaigns. These three rationales collectively reflected approximately 75% of activism campaigns during each time period (noting that many campaigns have multiple rationales), with other rationales (governance, management changes, return of capital and change of control) representing the minority. M&A (which includes advocacy for or against spin-offs, acquisitions and sales) and board composition were each a motivator for activist activity in the case of 63% of campaigns (as compared to 55% and 67%, respectively, in the first half of 2019). M&A and board composition were followed by business strategy (54% of campaigns, as compared to 51% in the first half of 2019). On the other hand, advocacy for changes in governance (29% of campaigns in the second half of 2019), managerial changes (17% of campaigns), return of capital (8% of campaigns) and attempts to take corporate control (4% of campaigns) represented less frequently cited rationales for activist campaigns. Proxy solicitation occurred in 29% of the campaigns, representing a significant increase relative to the first half of 2019, in which 15% of campaigns featured activists filing proxy materials. (Note that the above-referenced percentages total over 100%, as certain activist campaigns had multiple rationales.) The diminution in shareholder activism activity brought with it a decline in publicly filed settlement agreements. Only five such settlements were filed during the review period, which is the lowest number observed for a half-year-period since 2014. Those settlement agreements that were filed had many of the same features noted in prior reviews, however, including voting agreements and standstill periods as well as non-disparagement covenants and minimum and/or maximum share ownership covenants. Expense reimbursement provisions were included in approximately half of those agreements reviewed, which is consistent with historical trends. We delve further into the data and the details in the latter half of this Client Alert. Though not covered in this Client Alert, we note that early indications suggest that the COVID-19 pandemic has caused a decline in shareholder activism activity during the first half of 2020. However, some activists may see opportunities in market dislocation to increase pressure on certain targets and/or to increase their positions in certain companies opportunistically. These trends may be borne out in both the types of targets on which activists focus as well as in the rationales for the campaigns that activists launch. We will analyze these trends in detail during our next shareholder activism update. We hope you find Gibson Dunn’s 2019 Year-End Activism Update informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

Gibson Dunn 2018 Year-end Activism Update - Click here for complete update


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com) Daniel Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com) Jessica L. Bondy (+1 212.351.3802, jbondy@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 26, 2020 |
Reconsidering Poison Pills

Click for PDF By: Eduardo Gallardo, Partner, New York The public health crisis caused by COVID-19 has had a dramatic economic impact on the trading prices of U.S. companies across all industries.  As boards of directors and management teams work to stabilize their operations and deal with the myriad issues caused by the pandemic, we have witnessed a number of opportunistic shareholder activists accumulating stakes in publicly traded targets.  In the current environment, boards and their advisors should take, and several already have taken, a fresh look at the implementation of a shareholder rights plan (aka “poison pill”). Rights plans were a permanent fixture in most public companies’ defensive profile until the turn of century, when various governance and proxy advisory groups began an effective campaign to pressure companies into letting expire, or terminating, their rights plans.  This is reflected in the fact that, according to SharkRepellent, only approximately 1% of companies in the S&P 500 had an active rights plan in place as of March 1, 2020, while around the year 2000 approximately 60% of the S&P 500 had one.  Instead of maintaining standing long-term rights plans as a general defensive measure, many companies have kept rights plans in draft form “on the shelf”—ready for implementation if needed.  Under the existing extraordinary market conditions, companies in particularly affected sectors should evaluate the advisability of activating on-the-shelf plans. In assessing whether to activate a rights plan, companies should consider the following:

  • Presence of Activist: Companies that already have an activist in their stock should closely monitor for potential accelerated accumulations.  We recommend that boards take prompt action in the event there is a clear indication that the activist is proceeding with any aggressive accumulation of additional shares.
  • Schedule 13D: Federal securities rules and regulations require an activist or hostile bidder to publicly file a Schedule 13D within ten days after crossing the 5% ownership threshold.  However, after the initial threshold is crossed, accumulations can continue during the ten-day filing window, such that the buyer could launch its public campaign after having acquired an ownership stake well over the 5% threshold.  This is particularly important to consider for companies that are seeing increased trading volumes that might facilitate rapid accumulations of large blocks of stock.  Companies should also keep in mind that currently SEC rules do not require the aggregation of certain derivative instruments in computing whether the 5% threshold has been crossed, a loophole often used by professional activists to conceal their economic exposure to a target.
It is important to note that, following the filing of an initial Schedule 13D, an activist will be required to file an amendment within one or two business days after each time it acquires an additional one percent of the class of securities.  For a company with an existing activist, this amendment might be a good early-warning indicator of when to activate a rights plan.
  • HSR Filing Obligation: The Hart-Scott-Rodino Antitrust Improvements Act of 1976 generally requires a filing with the Federal Trade Commission and U.S. Department of Justice (with notice to the target company) and subsequent observation of the statutory waiting period before a person can acquire and, as a result of the acquisition, hold more than $94 million in shares for non-passive purposes.  Although somewhat peculiar, for larger publicly traded companies, this antitrust rule generally establishes a more effective warning system against aggressive stock accumulations than Schedule 13D does under federal securities laws.  However, the HSR filing obligations may not apply to groups of fund vehicles, as well as many derivative instruments, some of which are specifically designed with this purpose in mind.  As a result, the HSR filings may not always provide the advance notice of an activist.
  • ISS Considerations: One of the main deterrents against adoption of rights plans in recent years has been the fact that the proxy advisory firm Institutional Shareholder Services (ISS) will generally recommend votes against incumbent director nominees at annual meetings where the company has recently adopted a rights plan with a term of more than one year.  However, for plans with a duration of less than a year, ISS will make its recommendations on a case-by-case basis taking into account the disclosed rationale for adopting the plan and other relevant factors (such as a commitment to put any renewal of the pill to a shareholder vote).
We believe that existing market conditions should be strongly considered and taken into account by ISS when reviewing cases, particularly where the board articulates a clear rationale for implementation of the rights plan.  Companies should also consider whether they previously adopted a governance policy promising to seek stockholder approval prior to adopting a rights plan unless the board, in the exercise of its fiduciary duties, determines that it is in the best interests of the company and stockholders to do so before seeking approval.  Such policies should not deter adoption but typically also provide that any rights plan adopted without shareholder approval will expire unless approved by shareholders within the next year.
  • Duration: As a general matter, we believe that most companies that implement a plan in the coming weeks should consider an expiration date between six and nine months of adoption, and we have recently advised clients to adopt plans that expire on December 31, 2020.  We believe that date strikes the right balance between adopting an instrument that protects shareholder value in this uncertain environment and mitigating against the potential criticism from governance groups.  Of course, the board will always have the power to accelerate the term if it deems it in the best interests of the company and its shareholders.
  • Net Operating Losses (“NOLs”): For companies with NOLs, a deemed “ownership change” under Internal Revenue Code Section 382 can materially impair or eliminate NOLs.  The complex Section 382 test is dependent on shifts of ownership of 5% or greater holders over a rolling three-year period.  NOL rights plans have acquisition triggers of 5%—much lower than the customary rights plans—but otherwise are substantially identical to a traditional rights plan.  In light of ongoing market volatility and changes in investor positions, for companies with both material NOLs and demonstrable ownership shift percentage under Section 382, an NOL rights plan may make sense.

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Under the current extraordinary circumstances, companies in particularly vulnerable industries should actively assess the advantages and disadvantages of implementing a rights plan to ensure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the company and to guard against creeping accumulations of control. For more information, please contact the author Eduardo Gallardo. To view more insights regarding the COVID-19 pandemic, visit our COVID-19 Resource Center.  

October 7, 2019 |
M&A Report – 2019 Mid-Year Activism Update

Click for PDF This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion during the first half of 2019. As is typically the case during proxy season, shareholder activism rose during the first half of 2019 relative to the second half of 2018 as reflected in the number of public actions (51 vs. 40), in the number of activist investors that launched campaigns (33 vs. 29) and in the number of companies involved (46 vs. 34). As compared to the same period of 2018, however, shareholder activism activity declined, as reflected by the number of public actions in the first half of 2018 (51 vs. 62), the number of activist investors that launched campaigns (33 vs. 41) and the number of companies involved (46 vs. 54). The types of companies targeted by shareholder activists changed in certain respects as well. During the second half of 2018, activists focused primarily on smaller public companies, as nearly two-thirds of those that were the subject of campaigns had market capitalizations of less than $5 billion and only 17% had market capitalizations in excess of $20 billion. By contrast, in the first half of 2019, companies with a capitalization of less than $5 billion represented only 45% of those targeted by activists, and companies with market capitalizations in excess of $20 billion comprised 29% of those companies targeted. The campaigns launched by NorthStar Asset Management against Alphabet and Facebook, Pershing Square against United Technologies Corporation and Starboard against Bristol-Myers Squibb and Appaloosa (all companies with market capitalizations in excess of $50 billion) stood in contrast with the second half of 2018, when comparatively few campaigns involving companies with market capitalizations in excess of $50 billion were launched.

By the Numbers – H1 2019 Public Activism Trends

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Additional statistical analyses may be found in the complete Activism Update linked below.  The rationales for activist campaigns during the first half of 2019 remained consistent with that of the second half of 2018. In both cases, the leading campaign types were focused on board composition, mergers and acquisitions and business strategy. These three rationales collectively comprised approximately 75% of campaigns during both time periods, with other rationales (governance, return of capital, management changes and control) representing a small minority. The frequency with which activists engaged in proxy solicitation increased, however, from 15% of campaigns in the second half of 2018 to 24% of campaigns in the first half of 2019. (Note that the data provided in this Client Alert includes more campaign rationales than the number of campaigns, as certain activist campaigns had multiple rationales.) A total of 17 settlement agreements were reached in the first half of 2019, and most maintained the key terms that have emerged as typical in recent years. Consistent with the second half of 2018, well over 90% of settlement agreements provided for voting agreements and standstill periods, and over 85% of settlement agreements included minimum and/or maximum share ownership levels and non-disparagement clauses. We delve further into the data and the details in the latter half of this edition of this Client Alert. We hope you find this Client Alert informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

Gibson Dunn 2018 Year-end Activism Update - Click here for complete update


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com) Daniel Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

August 23, 2019 |
SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process

Click for PDF On August 21, 2019, the Securities and Exchange Commission (the “Commission”) issued new guidance regarding two elements of the proxy voting process[1] that are influenced by proxy advisory firms: proxy voting advice issued by proxy advisors and proxy voting by investment advisers who use that proxy voting advice. The guidance, in the words of Commissioner Elad L. Roisman, “reiterate[s] longstanding Commission rules and positions that remain applicable and very relevant in today’s marketplace.” Notably, the two releases issued by the Commission are not subject to notice and comment and will instead become effective upon publication in the Federal Register. Specifically, the Commission approved issuing both:

  • a Commission interpretation that the provision of proxy voting advice by proxy advisory firms generally constitutes a “solicitation” under federal proxy rules and new Commission guidance about the availability of exemptions from the federal proxy rules and the applicability of the proxy anti-fraud rule to proxy voting advice (the “Proxy Voting Advice Release”);[2] and
  • new Commission guidance intended to facilitate investment advisers’ compliance with the fiduciary duties owed to each client in connection with the exercise of investment advisers’ proxy voting responsibilities, including in connection with their use of proxy advisory firms (the “Proxy Voting Responsibilities Release”[3] and together, the “Releases”).
The Commission approved both Releases by a vote of 3-2, with Commissioners Robert J. Jackson, Jr. and Allison Herren Lee dissenting from each Release. In their statements explaining their opposition, Commissioners Jackson and Lee expressed concern that neither was subject to a notice and comment period, which prevented the Commission from fully considering the consequences of the new guidance.[4] Both Commissioners also questioned whether the Releases will increase costs associated with the provision and use of proxy voting advice, and Commissioner Lee expressed concern that greater issuer involvement in the proxy voting recommendation process could “undermine the reliability and independence of voting recommendations.” Background Over the past several years, the Commission and its staff (the “Staff”) have issued statements and held public forums to discuss issues related to voting advice issued by proxy advisory firms and investment advisers’ reliance on that advice. For example, in July 2010, the Commission issued a concept release[5] that sought public comment on, among other topics, the legal status and role of proxy advisory firms.[6] And in June 2014, the staff of the Divisions of Investment Management and Corporation Finance issued Staff Legal Bulletin No. 20 (“SLB 20”),[7] which provided guidance on investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms and the availability and requirements of two exemptions to the federal proxy rules often relied upon by proxy advisory firms.[8] Subsequently the Staff held a roundtable in November 2018 to provide an opportunity for market participants to engage with the Staff on various aspects of the proxy process (the “2018 Roundtable”).[9] The 2018 Roundtable included panels addressing each of the regulation of proxy advisory firms, proxy voting mechanics and technology, and shareholder proposals. Participants on the proxy advisory firms panel discussed investor advisers’ reliance on voting advice provided by proxy advisory firms, how proxy advisory firms address conflicts of interest and challenges issuers face in correcting factual errors in voting recommendations published by proxy advisory firms.[10] Following the 2018 Roundtable, Chairman Jay Clayton announced that Commissioner Roisman would lead the Commission’s efforts to improve the proxy voting process and infrastructure.[11] In his opening remarks at the Commission’s August 21 meeting, Commissioner Roisman indicated that the Releases were the first of several matters that the Commission may consider in the near future relating to its proxy voting rules.[12] Other matters that Commissioner Roisman mentioned would likely be considered “in the near future” include proposed reforms to the rules addressing proxy advisory firms’ reliance on proxy solicitation exemptions and the rules regarding the thresholds for shareholder proposals announced as part of the Commission’s Spring 2019 Regulatory Flexibility Agenda.[13] Summary of the Proxy Voting Advice Release The Proxy Voting Advice Release, developed by the Commission’s Division of Corporation Finance, addresses two topics: the Commission articulates its view that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” subject to the federal proxy roles, and the Commission provides an interpretation and additional guidance on the applicability of the federal proxy rules to proxy voting advice that is designed to influence the voting decisions of a proxy advisory firm’s clients. Proxy Voting Advice Constitutes a Solicitation Under the Federal Proxy Rules As explained in the Proxy Voting Advice Release, under Rule 14a‑1(l) of the Securities Exchange Act of 1934 (the “Exchange Act”), a “solicitation” includes “a communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” This includes communications seeking to influence the voting of proxies, even if the person issuing the communication does not seek authorization to act as a proxy and may be indifferent to its ultimate outcome. Communications that constitute “solicitations” under Rule 14a‑1(l) are subject to the information and filing requirements of the federal proxy rules. However, Exchange Act Rule 14a-2(b)(1) provides an exemption from the Commission’s information and filing requirements (but not from the anti-fraud rules) for “any solicitation by or on behalf of any person who does not, at any time during such solicitation, seek directly or indirectly, either on its own or another’s behalf, the power to act as a proxy for a security holder and does not furnish or otherwise request, or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization.” Based on this background, in the Proxy Voting Advice Release the Commission explains that its interpretation is informed by the purpose, substance and circumstances under which the proxy voting advice is provided. Where a proxy advisory firm markets its expertise in the research and analysis of voting matters to assist a client in making proxy voting decisions by providing voting recommendations, the proxy advisory firm is not “merely performing administrative or ministerial services.” Instead, the Commission believes that providing such proxy voting recommendations constitutes a solicitation because the recommendations are “designed to influence the client’s voting decision.” Importantly, the Commission believes that such recommendations constitute a solicitation even where a proxy advisory firm bases its recommendations on its client’s own tailored voting guidelines or the client ultimately decides not to follow the proxy voting recommendations.[14] The Commission makes clear that its interpretation does not prevent a proxy advisory firm from relying on the exemptions from the federal proxy rules information and filing requirements under Exchange Act Rule 14a-2(b)(1).[15] Nevertheless, the Commission’s interpretation is an important foundational basis for any subsequent regulation of proxy advisory firms that addresses conditions for the availability of Rule 14a-2(b)(1). Proxy Voting Advice Remains Subject to Exchange Act Rule 14a-9 In the second part of the Proxy Voting Advice Release, the Commission emphasizes that even where a proxy advisory firm’s voting advice is otherwise exempt from the information and filing requirements of the federal proxy rules under Exchange Act Rule 14a-2(b)(1), that voting advice remains subject to the anti-fraud provisions of Exchange Act Rule 14a-9. Accordingly, when issuing proxy voting advice, proxy advisory firms may not make materially false or misleading statements or omit material facts that would be required to make the voting advice not misleading. Exchange Act Rule 14a-9 prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact. In addition, solicitations may not omit any material fact necessary in order to make the solicitation false or misleading. Of particular importance for proxy voting advice based on the research and analysis of proxy advisory firms, Exchange Act Rule 14a-9 also extends to opinions, reasons, recommendations or beliefs that are disclosed as part of a solicitation. Where such opinions, recommendations or similar views are provided, disclosure of the underlying facts, assumptions, limitations and other information may need to be disclosed so that these views do not raise concerns under the rule. Depending on the materiality of the information and the particular circumstances, the Commission indicates that proxy advisory firms may need to disclose additional information to avoid issues under Exchange Act Rule 14a-9, including:
  • an explanation of the firm’s methodology used to formulate its voting advice on a particular matter;
  • non-public information sources and the extent to which the information from these sources differs from the publicly available disclosures; and
  • any material conflicts of interest that arise in connection with providing the proxy voting advice in reasonably sufficient detail so that the client can assess the relevance of those conflicts.
Summary of the Proxy Voting Responsibilities Release Developed by the Commission’s Division of Investment Management, the Proxy Voting Responsibilities Release clarifies how an investment adviser’s fiduciary duties to its clients inform the investment adviser’s proxy voting responsibilities, particularly where investment advisers retain proxy advisory firms to assist in some aspect of their proxy voting responsibilities. Under Rule 206(4)-6 of the Investment Advisers Act of 1940, an investment adviser that assumes proxy voting authority must implement policies and procedures that are reasonably designed to ensure it makes voting decisions in the best interest of clients. The Commission reiterates throughout the Proxy Voting Responsibilities Release that proxy voting must be consistent with the investment adviser’s fiduciary duties and in compliance with Rule 206(4)-6. The Proxy Voting Responsibilities Release sets forth six examples of considerations investment advisers should evaluate when discharging their fiduciary duties in connection with proxy voting. The Commission emphasizes that this list of considerations is non-exhaustive, and while its guidance is generally phrased as considerations or actions investment advisers “should” evaluate, the Commission further indicates that these examples are not the only way for investment advisers to discharge their fiduciary duties when voting proxies.
1. Determine the scope of the investment adviser’s proxy voting authority and responsibilities
If an investment adviser agrees to assume proxy voting authority, the scope of the voting arrangements should be determined between the investment adviser and each of its clients on an individual basis.  The Commission emphasizes that any proxy voting arrangements must be subject to full and fair disclosure and informed consent. Among the variety of potential approaches to proxy voting arrangements, the Commission provides several examples to which an investment adviser and its client may appropriately agree, including the investment adviser exercising proxy voting authority pursuant to specific parameters designed to serve the best interests of the client based on the client’s individual investment strategy, the investment adviser refraining from exercising proxy voting authority under agreed circumstances or the investment adviser voting only on particular types of proposals based on the client’s express preferences.
2. Demonstrate that the investment adviser is making voting determinations in its clients’ best interests and in accordance with its proxy voting policies and procedures
The Commission indicates that investment advisers must at least annually review and document the adequacy of its proxy voting policies and procedures, including whether the policies and procedures are reasonably designed to result in proxy voting in the best interest of the investment adviser’s clients. Because clients often have differing investment objectives and strategies, if an investment adviser has multiple clients then it should consider whether voting all of its clients’ shares under a uniform voting policy is in the best interest of each individual client.  Alternatively, an investment adviser should consider whether it should implement voting policies that are in line with the particular investment strategies and objectives of individual clients.  An investment adviser should also consider whether its voting policy or policies should be tailored to permit or require more detailed analysis for more complex matters, such as a corporate event or a contested director election. In addition, where an investment adviser retains a proxy advisory firm to provide voting advice or execution services, the investment adviser should consider undertaking additional steps to evaluate whether its voting determinations are consistent with its voting policies and in the best interests of its clients.
3. Evaluate any proxy advisory firm in advance of retaining it
Before retaining a proxy advisory firm, investment advisers should consider whether the proxy advisory firm has the capacity and competency to adequately analyze the matters for which it is providing voting advice.  The Commission indicates that the scope of the investment adviser’s proxy voting authority and the services for which the proxy advisory firm has been retained should inform the considerations that the investment adviser undertakes. Such consideration could include an assessment of the adequacy and quality of the proxy advisory firm’s staffing, personnel and/or technology.  In addition, investment advisers should consider the proxy advisory firm’s process for obtaining input from issuers and other clients with respect to its voting polices, methodologies and peer group design.
4. Evaluate processes for addressing potential factual errors, incompleteness or methodological weakness in a proxy advisory firm’s analysis
An investment adviser should have policies and procedures in place to ensure that its proxy voting decisions are not based on materially inaccurate or incomplete information provided by a proxy advisory firm.  By way of example, the Commission suggests that an investment adviser should consider periodically reviewing its ongoing use of the proxy advisory firm’s research or voting advice, including whether any potential errors, incompleteness or weaknesses materially affected the research or recommendations that the investment adviser relied on. In addition, the Commission indicates that investment advisers should consider the proxy advisory firm’s policies and procedures to obtain current and accurate information, including the firm’s engagement with issuers, efforts to correct identified material deficiencies, disclosure regarding its sources of information and its methodologies for issuing voting advice and the firm’s consideration of facts unique to the issuer or proposal.
5. Adopt policies for evaluating proxy advisory firms’ services
Where an investment adviser has retained a proxy advisory firm to assist with its proxy voting responsibilities, the investment adviser should adopt policies and procedures that are designed to evaluate the services of the proxy advisory firm to ensure that votes are cast in the best interests of the investment adviser’s clients. The Commission indicates that investment advisers should consider implementing policies and procedures to identify and evaluate a proxy advisory firm’s conflicts of interest on an on-going basis and evaluate the proxy advisory firm’s “capacity and competency” to provide voting advice and execute votes in accordance with the investment adviser’s instructions. In addition, investment advisers should consider how and when the proxy advisory firm updates its methodologies, guidelines and voting advice.
6. Determine when to exercise proxy voting opportunities
An investment adviser is not required to exercise every opportunity to vote in either of two circumstances—where the investment adviser and its client have agreed in advance that the investment adviser’s proxy voting authority is limited under certain circumstances and where the investment adviser and its client have agreed in advance that the investment adviser has authority to cast votes based on the best interests of the client. In both situations, the investment adviser’s action must be in accordance with its prior agreement with its client. Moreover, where an investment adviser may refrain from voting because doing so is in the best interest of its client, the investment adviser should first consider its duty of care to its client in light of the scope of services it has agreed to assume. Practical Considerations Just as the Commission was divided in approving the Releases, reactions to the Releases are likely to vary among participants in the proxy process. For example, public companies may both view the Releases as a positive step and believe that additional Commission action is needed to address the errors, conflicts of interests and other challenges with proxy advisory firms. The Commission was limited in the actions it could take via interpretation and issuing guidance in the Releases. However, the Commission signaled that the Staff is working on proposed rules “to address proxy advisory firms’ reliance on the proxy solicitation exemptions in Exchange Act Rule 14a‑2(b).” Given that the rulemaking process can be time-consuming, the Releases provide helpful immediate guidance heading into the 2020 proxy season. That said, it remains to be seen whether and to what extent the proxy advisory firms and their investment adviser-clients will adjust their practices in response to the Releases. For example, the proxy advisory firms may increase the disclosures included in their reports, particularly when they are relying on debated premises such as studies asserting that certain corporate governance or sustainability actions increase shareholder value. They may also be less willing to rely on information provided either by proponents or activists unless that information has been filed with the Commission. Investment advisers inclined to vote lock-step with proxy advisory firm recommendations may be more willing to engage with companies in advance of voting. Similarly, the Commission’s statements on the application of Rule 14a-9 to proxy advisory firm reports and recommendations[16] may affect various proxy advisory firm practices due to the threat (real or perceived) of public companies commencing litigation against these firms in the event that statements in a proxy advisory firm’s report are viewed as materially false or misleading. For example, it is common to see parties in contested solicitations commence litigation under Rule 14a‑9 challenging the other side’s solicitation materials. It is not hard to envision similar litigation playing out in the future when there are differences of opinion as to whether a proxy advisory report contains information that is either inaccurate or misleading, or where it simply omits information that leaves the disclosed information materially misleading. As a result, proxy advisory firms may change their practices for vetting and issuing their voting recommendation reports; for example, the firms may be more inclined to provide drafts of their reports to public companies in advance of the reports being issued. ________________________ [1]   The two most influential proxy advisory firms are Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co. [2]   Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Exchange Act Release No. 34-86721 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/34-86721.pdf. [3]   Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Investment Advisers Act Release No. IA-5325 and Investment Company Act Release No. IC-33605 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/ia-5325.pdf. [4]   See Commissioner Robert J. Jackson, Jr., “Statement on Proxy-Advisor Guidance” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-jackson-082119; Commissioner Allison Herren Lee, “Statement of Commissioner Allison Herren Lee on Proxy Voting and Proxy Solicitation Releases” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-lee-082119. [5]   Concept Release on the U.S. Proxy System, Release No. 34-62495, 75 FR 42982 (July 22, 2010), available at https://www.sec.gov/rules/concept/2010/34-62495.pdf. [6]   For additional information on the 2010 concept release, please see our client alert dated July 22, 2010, available at https://www.gibsondunn.com/securities-and-exchange-commission-issues-concept-release-seeking-public-comment-on-u-s-proxy-system/. [7]   Staff Legal Bulletin No. 20 (June 30, 2014), available at http://www.sec.gov/interps/legal/cfslb20.htm. [8]   For additional information regarding SLB 20, please see our client alert dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [9]   See Securities and Exchange Commission, “Spotlight on Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/proxy-roundtable-2018. [10]   See Securities and Exchange Commission Webcast Archive, “Roundtable on the Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/video/webcast-archive-player.shtml?document_id=111518roundtable. [11]   See Chairman Jay Clayton, “Remarks for Telephone Call with SEC Investor Advisory Committee Members” (Feb. 6, 2019), available at https://www.sec.gov/news/public-statement/clayton-remarks-investor-advisory-committee-call-020619. [12]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119. [13]   See Agency Rule List - Spring 2019, available here. [14]   In contrast, ISS previously asked the Commission to confirm that “a registered investment adviser who is contractually obligated to furnish vote recommendations based on client-selected guidelines does not provide ‘unsolicited’ proxy voting advice, and thus is not engaged in a ‘solicitation’ subject to the Exchange Act proxy rules.” Letter from Gary Retelny, President and CEO, ISS, to Brent J. Fields, Secretary, Commission (Nov. 7, 2018), available at https://www.sec.gov/comments/4-725/4725-4629940-176410.pdf. [15]   For additional information regarding the Staff’s views on the availability of such exemptions for proxy advisory firms, please see our client alert regarding SLB 20 dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [16]   The solicitation exemption in Rule 14a-2(b)(3) explicitly does not also provide an exemption from Rule 14a-9.
Thanks to associate Geoffrey Walter in Washington, D.C. for his assistance in the preparation of this client update. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers: Securities Regulation and Corporate Governance: Elizabeth Ising - Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) James J. Moloney - Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Brian J. Lane - Washington, D.C. (+1 202-887-3646, blane@gibsondunn.com) Lori Zyskowski - New York (+1 212-351-2309, lzyskowski@gibsondunn.com) Shareholder Activism: Eduardo Gallardo - New York (+1 212-351-3847, egallardo@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 25, 2019 |
M&A Report – 2018 Year-End Activism Update

Click for PDF This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion during the second half of 2018. Shareholder activism underwent a modest decline in the second half of 2017, but accelerated again in the first half of 2018. A similar pattern emerged during the second half of 2018, with a modest decline relative to the second half of 2017 in the numbers of public activist actions (40 vs. 46), activist investors taking actions (29 vs. 36) and companies targeted by such actions (34 vs. 39). However, in light of the robustness of shareholder activism activity in the first half of 2018, full-year numbers for 2018 are virtually identical to those of 2017, including with respect to the numbers of public activist actions (98 vs. 98), activist investors taking actions (65 vs. 63) and companies targeted by such actions (82 vs. 82). During the period spanning July 1, 2018 to December 31, 2018, four of the 34 companies targeted by activists were the subject of multiple campaigns, led by Dell Technologies Inc., which was the subject of four different activist campaigns. Bunge Limited was also the subject of two simultaneous campaigns by D.E. Shaw Group and a company before settling both campaigns at the same time. As to the activists, seven out of the 29 covered in this Client Alert launched multiple campaigns. The market capitalizations of those companies reviewed in this Client Alert ranged from just above the $1 billion minimum to just under $100 billion, as of December 31, 2018 (or as of the last date of trading for those companies that were acquired and delisted).

By the Numbers – 2018 Full Year Public Activism Trends

Chart

Additional statistical analyses may be found in the complete Activism Update linked below.  Compared to the first half of 2018, activists focused their campaigns more squarely on M&A as compared to other rationales. In the case of 65% of campaigns, M&A, including advocacy for or against spin-offs, acquisitions and sales, was an activist motivation (as compared to 32% in the first half of 2018), followed by business strategy (50% of campaigns, as compared to 36% in the first half of 2018). Changes to board composition, which had gained prominence in the first half of 2018 as the most common rationale for activist campaigns, represented the goal of activists in 45% of campaigns in the second half of 2018 (as compared to 76% in the first half of 2018). On the other hand, advocacy for changes in governance (20% of campaigns in the second half of 2018), return of capital (15% of campaigns), managerial changes (13% of campaigns) and attempts to take corporate control (5% of campaigns) represented less-frequently cited rationales for activist campaigns. Proxy solicitation transpired in 15% of the campaigns, representing a modest decline relative to the first half of 2018, in which 20% of campaigns featured activists filing proxy materials. (Note that the above-referenced percentages sum to over 100%, as certain activist campaigns had multiple rationales.) Consistent with the heightened focus on M&A and diminished attention paid by activists in their campaigns to board composition and governance, the number of publicly filed settlement agreements declined to nine (as compared to 21 in the first half of 2018). Consistent with prior trends, certain key terms have become increasingly standard in such settlement agreements. Voting agreements and standstill periods appeared in each of the settlement agreements, and non-disparagement covenants and minimum and/or maximum share ownership covenants appeared in all but one of the settlement agreements. Expense reimbursement appeared in over half of the settlement agreements reviewed (five), continuing a trend that began in the first half of 2018, when 62% of publicly filed settlement agreements contained such a provision (as compared to an historical average of 36% from 2014 through the first of 2017). Strategic initiatives did not figure prominently in settlement agreements entered into during the second half of 2018, being included in only two settlement agreements. We delve further into the data and the details in the latter half of this edition of Gibson Dunn’s Activism Update. We hope you find Gibson Dunn’s 2018 Year-End Activism Update informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

Gibson Dunn 2018 Year-end Activism Update - Click here for complete update


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Saee Muzumdar (+1 212.351.3966, smuzumdar@gibsondunn.com) Daniel Alterbaum (+1 212.351.4084, dalterbaum@gibsondunn.com) William Koch (+1 212.351.4089, wkoch@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 3, 2018 |
M&A Report – 2018 Mid-Year Activism Update

Click for PDF

This Client Alert provides an update on shareholder activism activity involving NYSE- and NASDAQ-listed companies with equity market capitalizations above $1 billion during the first half of 2018.  After a modest decline in activist activity in the second half of 2017, activism resumed a torrid pace during the first half of 2018.  Compared to the same period in 2017, which had previously been the most active half-year period covered by any edition of this report, this mid-year edition of Gibson Dunn’s Activism Update reflects a further increase in public activist actions (62 vs. 59) and companies targeted by such actions (54 vs. 50).

In this edition of the Activism Update, our survey covers 62 total public activist actions, involving 41 different activist investors targeting 54 different companies.  Eight of those companies faced activist campaigns from two different investors, and five of those situations involved at least some degree of coordination between the activists involved.  Nine activist investors were responsible for two or more campaigns between January 1, 2018 and June 30, 2018, representing 30, or nearly half, of the 62 campaigns covered by this report.

By the Numbers – 2018 Full Year Public Activism Trends

By the Numbers - H1 2018 Public Activism Trends

*All data is derived from the data compiled from the campaigns studied for the 2018 M Activism Update.

Additional statistical analyses may be found in the complete Activism Update linked below. 

While changes in business strategy were the top goal of activist campaigns covered by Gibson Dunn’s Activism Update for the second half of 2017, changes to board composition have returned to prominence in the first half of 2018 (75.8% of campaigns), coinciding with a dramatic uptick in publicly filed settlement agreements during the same period.  Activists pursued governance initiatives, sought to influence business strategy, and took positions on M&A-related issues (including pushing for spin-offs and advocating both for and against sales or acquisitions) at nearly equal rates, representing 35.5%, 33.9%, and 32.3% of campaigns, respectively.  Demands for management changes (21.0% of campaigns), attempts to take control of companies (9.5% of campaigns), and requests for capital returns (6.1% of campaigns) remained relatively less common goals of activist campaigns over the first half of 2018.  The frequency of activists filing proxy materials remained relatively consistent with periods covered by recent editions of this report, with investors filing proxy materials in just over one in five campaigns.  While market capitalizations of target companies ranged from this survey’s $1 billion minimum threshold to $100 billion, activists’ focus remained largely on small-cap companies with market capitalizations below $5 billion, which represented 64.8% of the 54 target companies captured by our survey.

The most significant development noted in our previous report, covering the second half of 2017, was the decrease in publicly filed settlement agreements between activist investors and target companies, which we attributed partially to the concurrent decline in campaigns involving activists seeking board seats.  This trend has been reversed.  As campaigns seeking board representation have returned to prominence, the number of publicly filed settlement agreements in the first half of 2018 has seen a fivefold increase from the previous half-year period, from four such agreements in the second half of 2017 to 21 in the first half of 2018.  Trends in the key terms of settlement agreements remain relatively steady.  Voting agreements, standstills, and ownership thresholds remain nearly ubiquitous.  Non-disparagement provisions dropped off slightly in the first half of 2018, while committee appointments for new directors and other strategic initiatives (e.g., replacement of management, spin-offs, governance changes) remained near their historical averages in prior editions of this report.  The increased frequency of expense reimbursement noted in our last report has also continued into 2018, with 62% of publicly filed settlement agreements containing such a provision compared to a historical average of just 36% from 2014 through the first half of 2017.  Further details and data on publicly filed settlement agreements may be found in the latter half of this report.

We hope you find Gibson Dunn’s 2018 Mid-Year Activism Update informative. If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

2018 Mid-Year Activism Update - click to download PDF


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) William Koch (+1 212.351.4089, wkoch@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 29, 2018 |
M&A Report – 2017 Year-End Activism Update

This Client Alert provides an update on shareholder activism activity involving NYSE- and NASDAQ-listed companies with equity market capitalizations above $1 billion during the second half of 2017, as well as a look back at trends for the 2017 calendar year. Activism activity declined modestly during the second half of 2017, similar to the trend we found in the second half of 2016, which can be partially attributed to the passing of the proxy season. Overall, activist activity rose slightly in 2017 from 2016. In 2017, Gibson Dunn's Activism Update surveyed 98 public activist actions involving 82 companies and 63 activist investors, compared to 90 public activist actions involving 78 companies and 60 activist investors in 2016. Our survey covers 46 total public activist actions, involving 36 different activist investors and 39 companies targeted, during the period from July 1, 2017 to December 31, 2017. Six of those companies faced advances from multiple investors, including three companies that faced coordinated actions by activist groups. Equity market capitalizations of the target companies ranged from just above the $1 billion minimum covered by this survey to approximately $235 billion.

By the Numbers – 2017 Full Year Public Activism Trends

Chart Set - 2017 Full Year Public Activism Trends

*Includes data compiled for both 2017 Mid-Year and Year-End Activism Update publications. **All data is derived from the data compiled from the campaigns studied for the 2017 Year-End Activism Update.

Additional statistical analyses may be found in the complete Activism Update linked below. In the second half of 2017, activists most frequently sought to influence target companies' business strategies (63.0% of campaigns), while changes to board composition and M&A-related issues (including pushing for spin-offs and advocating both for and against sales or acquisitions) were sought in 41.3% and 34.7% of campaigns, respectively. Changes to corporate governance practices (including de-staggering boards and amending bylaws) (23.9% of campaigns), changes in management (10.9% of campaigns), and requests for capital returns (10.9% of campaigns) were relatively less common. Seven campaigns involved proxy solicitations during the second half of 2017, five of which reached a vote. Finally, activism was most frequent among small-cap companies (64.1% of companies targeted had equity market capitalizations below $5 billion). More data and brief summaries of each of the activist actions captured by our survey follow in the first half of this publication. The most notable change from prior periods surveyed is the decrease in publicly filed settlement agreements, as our survey captured only four such agreements in the second half of 2017, compared to 12 in the first of 2017 and 13 in the second half of 2016. The decline in publicly filed agreements may be partially attributable to the decrease in the percentage of actions in which activists sought board seats. Though certain key terms of settlement agreements, including standstills, voting agreements, ownership thresholds and non-disparagement agreements, remain nearly ubiquitous, we think it is notable, despite the small sample size, that all four agreements covered in this edition of Activism Update included expense reimbursement provisions, which had been on the decline during prior periods. We hope you find Gibson Dunn’s 2017 Year-End Activism Update informative.  If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

2017 Year-End Activism Update - click to download PDF


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (+1 212.351.4062, bbecker@gibsondunn.com) Richard J. Birns (+1 212.351.4032, rbirns@gibsondunn.com) Dennis J. Friedman (+1 212.351.3900, dfriedman@gibsondunn.com) Eduardo Gallardo (+1 212.351.3847, egallardo@gibsondunn.com) Adam J. Brunk (+1 212.351.3980, abrunk@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (+1 214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (+1 202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (+1 310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (+1 949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212.351.2309, lzyskowski@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 15, 2017 |
M&A Report: 2017 Mid-Year Activism Update

This Client Alert provides an update on shareholder activism activity involving NYSE- and NASDAQ-listed companies with equity market capitalizations above $1 billion during the first half of 2017.  Activism has continued at a vigorous pace thus far in 2017.  As compared to the same period in 2016, this mid-year edition of Gibson Dunn's Activism Update captured more public activist actions (59 vs. 45), more activist investors taking actions (41 vs. 35), and more companies targeted by such actions (50 vs. 38). During the period from January 1, 2017 to June 30, 2017, seven of the 50 companies targeted faced advances from multiple activists, including two companies that each had three activists make separate demands and two companies that each dealt with activists acting jointly.  As for the activists, 10 of the 41 captured by our survey took action at multiple companies.  Equity market capitalizations of the target companies ranged from just above the $1 billion minimum covered by this survey to approximately $235 billion, as of June 30, 2017.

By the Numbers - H1 2017 Public Activism Trends

Chart Series - H1 2017 Public Activism Trends

*Study covers selected activist campaigns involving NYSE and NASDAQ-traded companies with equity market capitalizations of greater than $1 billion as of June 30, 2017 (unless company is no longer listed). **All data is derived from the data compiled from the campaigns studied for the 2017 Mid-Year Activism Update.

Additional statistical analyses may be found in the complete Activism Update linked below. Activists continued to be most interested in changes to board composition, including gaining representation on the board (67.8% of campaigns), and changes to business strategy (61.0% of campaigns).  Goals related to M&A, including pushing for spin-offs and advocating both for and against sales or acquisitions, came up in 45.8% of the campaigns covered by our survey, while other governance initiatives (30.5% of campaigns) and changes in management (27.1% of campaigns) were relatively less common.  Interestingly, multiple activists approached companies not only seeking a change in management but with hand-picked replacements identified as part of their campaigns (e.g., Mantle Ridge at CSX Corp.).  Finally, while 20.3% of campaigns involved proxy solicitations during this past proxy season, none of the situations we cover involved attempts to take control of companies.  Of the 12 proxy solicitations we reviewed, four reached a shareholder vote but only one resulted in a dissident victory, despite ISS and Glass Lewis supporting the dissident slate in two of the votes in which companies prevailed.  We also note that, while activism continues to be most frequent at small-cap companies (46.0% of companies targeted had equity market capitalizations below $5 billion), the first half of 2017 saw a resurgence in activism at companies with equity market capitalizations greater than $20 billion, with 14 such companies targeted (28.0% of companies targeted), which is double the total number of such companies targeted in all of 2016.  More data and brief summaries of each of the activist actions captured by our survey follow in the first half of this publication. The number of publicly filed settlement agreements reviewed for this edition of our Activism Update declined against the same period in 2016 (12 vs. 17).  The decline in publicly filed agreements despite the rise in overall campaigns may be attributable to an increased willingness of companies to adopt activist requests, sometimes even appointing activist director nominees, without reaching a formal agreement.  Within the settlement agreements we reviewed, the inclusion of certain key terms has appeared to become standard since we first started tracking such terms in 2014.  Standstill periods, voting agreements, and ownership thresholds each appear in at least 90% of agreements.  Non-disparagement provisions appear in 87% of agreements, while the inclusion of other strategic initiatives (e.g., replacement of management, spin-offs, governance changes) and committee appointments for new directors are somewhat less frequent, each appearing in just over 70% of agreements.  Reimbursement of expenses continues to appear only occasionally (36%).  Notably, the frequencies of each of the tracked terms in the 12 agreements reviewed for this edition did not materially differ from the respective average frequencies since 2014.  We delve further into the data and the details in the latter half of this edition of Gibson Dunn's Activism Update. Finally, we note the frequency and publicity of "activist shorts" in 2017.  Though different from a traditional activist campaign in that such shorts inherently come without warning, this different breed of activist is no less worthy of note to the companies they target.  Unlike many traditional activists who aim to increase shareholder value and stay in a company's stock (sometimes even referring to themselves as "constructivists"), activist short-sellers are inherently disruptive.  The common practice is for an activist short-seller to take a short position in a company, then publicize, often in a white paper, what it feels are material vulnerabilities of the target company (e.g., overvaluation, misstated financials, industry weaknesses) and allow the market to react.  In the first half of 2017, within the same range of companies we survey for traditional activism (NYSE- and NASDAQ-listed companies with equity market capitalizations above $1 billion), 22 different activist short-sellers (only two of which also took traditional activist actions at other companies) publicized short positions in 30 different companies (two of which were targeted by multiple activist short-sellers). We hope you find Gibson Dunn's 2017 Mid-Year Activism Update informative.  If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

2017 Mid-Year Activism Update - Click to download PDF


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (212.351.4062, bbecker@gibsondunn.com) Richard J. Birns (212.351.4032, rbirns@gibsondunn.com) Dennis J. Friedman (212.351.3900, dfriedman@gibsondunn.com) Eduardo Gallardo (212.351.3847, egallardo@gibsondunn.com) Adam J. Brunk (212.351.3980, abrunk@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (212.351.2309, lzyskowski@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 9, 2017 |
M&A Report – 2016 Year-End Activism Update

This Client Alert provides an update on shareholder activism activity involving domestically traded public companies with equity market capitalizations above $1 billion during the second half of 2016.  Notwithstanding a difficult market backdrop in 2016, including the surprise "Brexit" vote, a bitterly fought U.S. presidential campaign, a significant decline in oil prices, and vigorous public debate on "short-termism," activist investors continued to be busy across a wide range of industries (even if fewer campaigns made major headlines).  Furthermore, in 2016 as compared to 2015, our survey found relative consistency in the total number of public activist actions (90 vs. 95), the number of activist investors involved in such actions (60 vs. 56), and the number of companies targeted by such actions (78 vs. 81).

In this edition of Activism Update, our survey covers 48 total public activist actions, involving 35 different activist investors and 43 companies targeted, during the period from July 1, 2016 to December 31, 2016.  Four of those companies faced advances from multiple investors, including one company that faced actions by three investors and another company that saw two activists temporarily coordinate their efforts.  Equity market capitalizations of the targets range from just above the $1 billion minimum covered by this survey to approximately $280 billion.

By the Numbers - 2016 Full Year Public Activism Trends

Chart Set - 2016 Full Year Public Activism Trends

**Includes data compiled for both 2016 Mid-Year and Year-End Activism Update publications. **All data represented here is derived from the data compiled from the campaigns studied for Activism Update.

Additional statistical analyses may be found in the complete Activism Update linked below. For the second half of 2016, changes to board composition, including gaining representation on the board, continued to be the most common objective of activist investors (52.1%).  In addition to goals related to M&A, including pushing for spin-offs and advocating both for and against sales or acquisitions (39.6%), activist investors frequently took on target companies' business strategy plans (39.6%).  Large equity capitalization companies were infrequently targeted, as only 8.3% of the companies included in this edition of Activism Update had equity market capitalizations greater than $20 billion, while the majority of campaigns included in our survey involved small capitalization companies, as 53.5% of the companies in our survey had equity market capitalizations below $5 billion.  The trend toward smaller targets continued from the first half of 2016 (for the first half of 2016, 10.5% of the companies were above $20 billion and 55.3% of the companies were below $5 billion). We also note an increase in publicly filed settlement agreements in 2016, as this survey covers 13 settlement agreements publicly filed in the second half of 2016, making it 30 total settlement agreements in 2016 compared to 22 such agreements in 2015.  Within the settlement agreements publicly filed in the second half of 2016, standstill periods and voting agreements remain nearly ubiquitous, and the marked increase in the inclusion of other strategic initiatives (e.g., replacement of management, spin-off company governance, etc.) seen in the first half of 2016 continued through the second half of the year (92.3% in the second half of 2016 and 86.7% for 2016 in total).  We delve further into the data and the details in the latter half of this edition of Gibson Dunn's Activism Update, in which we have included a chart of the activist campaigns covered by the survey and statistical analyses of various trends for the second half of 2016, as well as a survey of settlement agreement terms with breakdowns of settlement agreements publicly filed during the second half of 2016 and updated statistics on key settlement terms from 2014 through 2016.

We hope you find Gibson Dunn's 2016 Year-End Activism Update informative.  If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

2016 Year-End Activism Update - click to download PDF


Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (212.351.4062, bbecker@gibsondunn.com) Richard J. Birns (212.351.4032, rbirns@gibsondunn.com) Dennis J. Friedman (212.351.3900, dfriedman@gibsondunn.com) Eduardo Gallardo (212.351.3847, egallardo@gibsondunn.com) Adam J. Brunk (212.351.3980, abrunk@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members:  Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (212.351.2309, lzyskowski@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 16, 2016 |
M&A Report – 2016 Mid-Year Activism Update

This Client Alert provides an update on shareholder activism activity involving domestically traded public companies with equity market capitalizations above $1 billion during the first half of 2016.  Despite the uncertain domestic and international economic and political climates, shareholder activism continues to be common. In this edition of Activism Update, our survey covers 45 total public activist actions, involving 35 different activist investors and 38 companies targeted, during the period from January 1, 2016 to June 30, 2016.[1]  Seven of those companies faced advances from multiple investors, including two companies that faced coordinated actions by two investors.[2]  Equity market capitalizations of the targets range from just above our study's $1 billion minimum to approximately $334 billion.

By the Numbers - H1 2016 Public Activism Trends

Chart Series - H1 2016 Public Activism Trends

*Study covers selected activist campaigns involving domestically traded companies with equity market capitalizations of greater than $1 billion as of June 30, 2016 (unless company is no longer listed).

**All data is derived from the data compiled from the campaigns studied for the 2016 Mid-Year Activism Update.

Additional statistical analyses may be found in the complete Activism Update attached below. 

For the first half of 2016, both change in board composition, including gaining representation on the board (73.3%), and goals related to M&A, including pushing for spin-offs and advocating both for and against sales or acquisitions (53.3%), continued to be the most common objectives of activist investors.  While large capitalization companies were not immune from activist pressure (10.5% of the companies included in our 2016 mid-year survey had equity market capitalizations above $20 billion), the majority of public activist actions involved small capitalization companies, as 55.3% of the companies in our survey had equity market capitalizations below $5 billion. Our survey also covers 17 settlement agreements publicly filed in the first half of 2016.  Within such settlement agreements, non-disparagement clauses, standstill periods and voting agreements all remain nearly ubiquitous, while we note an uptick in the number of agreements providing for other strategic initiatives (e.g., replacement of management, spin-off company governance, etc.) (82.4% in H1 2016 vs. 58.8% in 2014 and 2015).  We delve further into the data and the details in the following pages. In this edition of Gibson Dunn's Activism Update, we have included a chart of the activist campaigns covered by the survey and statistical analyses of various trends for H1 2016, as well as a survey of settlement agreement terms with breakdowns of settlement agreements publicly filed during the first half of 2016 and updated statistics on key settlement terms from 2014 through the end of H1 2016. We hope you enjoy Gibson Dunn's 2016 Mid-Year Activism Update.  If you have any questions, please do not hesitate to reach out to a member of your Gibson Dunn team.

2016 Mid-Year Activism Update - click to download PDF


  [1]   Several companies faced actions from multiple activist investors, some of whom were acting in concert while others were acting independently vis-à-vis the target.   [2]   The other five companies were subject to multiple activists acting independently.
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this publication.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following authors in the firm's New York office: Barbara L. Becker (212.351.4062, bbecker@gibsondunn.com) Richard J. Birns (212.351.4032, rbirns@gibsondunn.com) Dennis J. Friedman (212.351.3900, dfriedman@gibsondunn.com) Eduardo Gallardo (212.351.3847, egallardo@gibsondunn.com) Adam J. Brunk (212.351.3980, abrunk@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members:  Mergers and Acquisitions Group: Jeffrey A. Chapman - Dallas (214.698.3120, jchapman@gibsondunn.com) Stephen I. Glover - Washington, D.C. (202.955.8593, siglover@gibsondunn.com) Jonathan K. Layne - Los Angeles (310.552.8641, jlayne@gibsondunn.com) Securities Regulation and Corporate Governance Group: Brian J. Lane - Washington, D.C. (202.887.3646, blane@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (202.955.8671, rmueller@gibsondunn.com) James J. Moloney - Orange County, CA (949.451.4343, jmoloney@gibsondunn.com) Elizabeth Ising - Washington, D.C. (202.955.8287, eising@gibsondunn.com) Lori Zyskowski - New York (212.351.2309, lzyskowski@gibsondunn.com) © 2016 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 3, 2015 |
The Heat is on: Update on Shareholder Activism in Germany

​Munich partner Markus Nauheim is the author of "The Heat is on: Update on Shareholder Activism in Germany" [PDF] published on September 3, 2015 by Business Law Magazine.

September 18, 2014 |
Webcast – Shareholder Activism

Please join us for an informative presentation on the practical steps to prepare for and respond to shareholder activism. Topics include:

  • Current trends in shareholder activism.
  • Effective shareholder communication strategies.
  • Rule 14a-8 shareholder proposals.
  • Legal planning for activism and considerations for the Board.
  • Stockholder identification programs.
  • Recent trends and issues regarding ISS voting recommendations.
View Slides [PDF]
https://player.vimeo.com/video/176380565
PANELISTS: Eduardo Gallardo: Eduardo is a partner in Gibson Dunn's New York office. His practice focuses on mergers and acquisitions and corporate governance matters. Mr. Gallardo has extensive experience representing public and private acquirers and targets in connection with mergers, acquisitions and takeovers, both negotiated and contested. He has also represented public and private companies in connection with proxy contests, leveraged buyouts, spinoffs, divestitures, restructurings, recapitalizations, joint ventures and other complex corporate transactions. Mr. Gallardo also advises corporations, their boards of directors and special board committees in connection with corporate governance and compliance matters, shareholder activism, takeover preparedness and other corporate matters. He also represents various major investment banks as financial advisors in M&A transactions, and hedge funds in their M&A and investment activities. Elizabeth A. Ising: Elizabeth is a partner in Gibson Dunn's Washington, D.C. office, practicing in the Securities Regulation and Corporate Governance Practice Group and the Financial Institutions Practice Group. She advises clients, including public companies and their boards of directors, on corporate governance, securities law and regulatory matters and executive compensation best practices and disclosures. Representative matters include advising on Securities and Exchange Commission reporting requirements, proxy disclosures, director independence matters, proxy advisory services, board and committee charters and governance guidelines and disclosure controls and procedures. Ms. Ising also regularly counsels public companies on shareholder activism issues, including on shareholder proposals and preparing for and responding to hedge fund and corporate governance activism. Adam H. Offenhartz: Adam is a partner in Gibson Dunn's New York office. He is a member of Gibson Dunn's Litigation Practice Group and focuses on commercial litigation with an emphasis on corporate control contests and other board and shareholder disputes as well as securities claims. He has handled and tried jury and non-jury cases involving mergers and acquisition battles, shareholder proposals, securities claims, board and shareholder disputes, restrictive covenants, bank fraud cases, real estate valuation and earn-out disputes and other matters. Mr. Offenhartz regularly represents plaintiffs/claimants for whom he has recovered substantial sums or achieved significant injunctive relief. Matthew Sherman: A founding partner and named President of Joele Frank, Wilkinson Brimmer Katcher in August 2013, Matt has more than 18 years of experience providing strategic corporate, financial and crisis communications counsel to Boards of Directors and executive leadership of public corporations and private equity firms involved in M&A, hostile takeovers, proxy contests, shareholder activism defense, spin-offs, reorganizations, financial restructurings, management changes, litigation, regulatory actions and a wide range of corporate crises. His areas of experience include shareholder activism, mergers and acquisitions, and investor relations and financial public relations. Scott S. Winter: Mr. Winter is a Managing Director of Innisfree M&A Incorporated. He advises companies and investors on all aspects of shareholder engagement focusing on hostile and friendly acquisitions, shareholder activism, contested shareholder meetings, corporate governance, and other proxy solicitation matters.

April 8, 2014 |
Webcast – Shareholder Activism – The New Dialogue

The rapidly changing landscape in UK and the rest of Europe & Lessons Learned from the US "There has never been a better time than today for activist investing" Carl Icahn, 2013 Over 235 companies worldwide were publicly targeted by activists in 2013, an increase of almost 10% from 2012. Of this nearly 20% involved European companies and just over 70% US companies (Activist Insight, 2014). It has been widely noted that activist activity in recent years has seen a significant increase in Europe, and notably the UK. Fevered media coverage of the "shareholder spring" in 2012 and 2013 may have ebbed, but shareholder focus has not. A new dimension characterises the dialogue between issuers and investors. Both sets of "players" have developed their "playbooks" to take account of regulatory changes and sentiment. Understanding this evolving area, the "swords and shields" available to companies and active investors; and how best to prepare for an activist campaign, will be key to any company or shareholder campaign. Please join a panel of experts from four leading advisory firms with extensive experience of advising both companies and activists, to guide you through this developing area. Topics discussed include:

  • An overview of recent trends and developments in Europe: what's new - campaigns, participants, strategies, regulatory developments and their impact on strategy
  • The activist's toolkit and strategy – The Campaign
  • Advance preparation and response by investee companies – The Defence
  • Case studies (US, UK and Europe)
Who should view this program: Listed company representatives, investors in listed companies (asset managers and asset owners) and advisors to this community View Slides [PDF]
PANELISTS: Selina Sagayam (Partner - Gibson Dunn, London) Selina is a corporate finance partner in the London office of Gibson Dunn. She is recognized as a leading lawyer in the fields of Corporate/M&A and corporate governance. She spent two years seconded in the senior role as The Secretary to the UK Panel on Takeovers and Mergers and has extensive experience advising on transactions involving public companies, including issuers and shareholders on (hostile) takeovers and public campaign/activist situations. Dennis Friedman (Partner - Gibson Dunn, New York) Dennis is a partner in the New York office of Gibson, Dunn & Crutcher. He has led the Firm's Mergers and Acquisitions Practice for many years. He is a widely recognized corporate lawyer with extensive experience in the mergers and acquisitions, corporate governance and capital markets areas. In addition to his 35-year-plus legal career, Dennis was an investment banker at several major Wall Street firms, where he was a senior M&A banker and also the head of a merchant banking group (1986 to 1992). Cas Sydorowitz (CEO, Corporate Advisory Services – Georgeson) Cas has been with Georgeson for close to 15 years, bringing with him five years' experience in international investor relations and shareholder identification. Cas is responsible for Georgeson's Northern European Proxy and Corporate Advisory business. He has an expert knowledge of global proxy voting mechanics and key governance matters affecting issuers and shareholders globally. Having worked for several activists and against many more he has in-depth experience to support investors or issuers in complex, sensitive activist campaigns. Jonathan Kaye (Managing Director – Moelis, New York) Jonathan is a Managing Director and Partner at Moelis & Company, based in New York, where he leads the Firm's shareholder activism defense practice. Jonathan has broad experience working with companies in dissident shareholder situations across sectors and in campaigns ranging from private settlement to public and acrimonious disputes. Jonathan joined Moelis from Citigroup, where he was a Managing Director and founded the Activism Defense practice. Olly Scott (Partner – Bell Pottinger) Olly has over a decade of communications experience across several sectors, including institutional and retail financial services, asset management, energy, retail and leisure. His work focuses on helping companies achieve their objectives through reputation development and defence by undertaking programmes that complement their wider communications. Olly specialises in financial and business issues public relations, IPOs, shareholder activism, crisis management and campaigns.

February 10, 2014 |
A Look At Shareholder Activism In The Retail Sector

New York partners Lois Herzeca and Eduardo Gallardo are the authors of "A Look At Shareholder Activism In The Retail Sector" [PDF] published by Law360 on February 10, 2014 at www.law360.com.

May 31, 2013 |
Shareholder Activism in the U.K. – an Introduction

London partners Jeffery Roberts and Selina Sagayam and associate Gareth Jones are authors of "Shareholder Activism in the U.K. - an Introduction" [PDF] published in the May 2013 issue of Wall Street Lawyer.

March 15, 2013 |
Shareholder Activism in the UK: An Introduction

This alert provides a summary of certain principles of English law and UK and European regulation applicable to UK-listed public companies and their shareholders that may affect shareholder activism, namely (i) stake-building, (ii) shareholders' rights to require companies to hold general meetings, (iii) shareholders' rights to propose resolutions at annual general meetings and (iv) recent developments in these and related areas. I Own or Am Intending to Acquire Shares; Do I Need To Make Any Disclosures? The UK's disclosure obligations (under the UK Listing Authority's Disclosure and Transparency Rules (the "DTRs")) apply once a person (or persons acting in concert) has (or together have) a holding of 3 per cent. or more of a listed company's total voting rights and capital in issue (either as a shareholder or through a direct or indirect holding of relevant financial instruments) unless the relevant listed public company enters an "offer period" (as to which, see below).  Thereafter, any changes to that holding that cause the size of the holding to reach, exceed or fall below every 1 per cent. above the 3 per cent. threshold (i.e. reaching, exceeding or falling below 4, 5, 6 per cent. etc.) must be disclosed by the relevant shareholder(s) to the listed company and the listed company is then obliged to announce those disclosures to the market.  In addition, the disclosure obligations extend to the disclosure of voting rights held by a person as an indirect holder of shares, such as where a person is entitled to acquire, dispose of or exercise the voting rights attaching to shares (for example, via synthetic holdings or contract(s) for difference).  It is important to note that any indirect holdings must be aggregated and separately identified in the relevant notification(s). The form and timing of disclosure There are rules on the form of notification that must be used and the information that it must contain.  In particular, notifications must provide details of all the parties to any agreement (formal or informal) which obliges them to adopt, by the concerted exercise of the voting rights they hold, a common policy towards the management of their holdings (although there is no requirement to disclose the detailed nature of that agreement).  The notification must be made to the relevant listed company as soon as is possible and in any case within two trading days in the case of UK companies and four trading days in the case of non-UK companies.  For shares admitted to trading on the London Stock Exchange's main market for listed securities, the notification must be made using the FSA's Form TR-1. Further comments The disclosure obligations cannot be avoided by connected third-parties (such as a financial adviser or related company) acquiring shares as part of an arrangement under which they would ultimately be sold to or otherwise under the control of the principal.  A person will be an indirect holder of shares for the purpose of the notification requirements where voting rights are held by a third-party with whom that person has concluded an agreement which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the target in question.  Such an agreement does not necessarily need to be in writing or indeed legally binding.  While ad hoc discussions and understandings which might be reached between institutional shareholders in relation to particular issues or corporate events, which is often referred to as collective engagement by institutional shareholders, are unlikely to be caught[1], an understanding reached in relation to planning or agreeing how to vote at an upcoming (and possibly future) AGM or general meeting may well start to fall on the wrong side of the line and accordingly could result in an aggregation of the relevant shareholdings for disclosure purposes.  For these reasons, the standards promulgated by the UK’s Hedge Funds Standards Board suggest that all such arrangement be documented and reported to the compliance function.  As the issues arise for the specific facts of each case, it is important to seek advice at an early stage. Finally, a disclosure should also be made to the relevant listed company by a person who reaches, exceeds or falls below the thresholds as a result of events changing the breakdown of voting rights and on the basis of information disclosed by the listed company (for example, following an unrelated corporate action such as a share buy-back).  In terms of penalties, non-compliance with the DTRs, while not a criminal offence, may attract significant financial penalties and/or a public censure.  It should be noted that, if a UK-listed public company enters an "offer period", disclosures of any dealings are then required by any person who is interested (directly or indirectly) in 1 per cent. or more of any class of securities of the company in question (pursuant to Rule 8 of the Code (as defined below)).  This rule catches a wider category of instruments than the DTRs, including, in particular, options and long derivative positions. I Have a Significant Shareholding: What Actions Can I Take? Calling shareholder meetings A shareholder (or shareholders acting together) can use the statutory procedure set out in Part 13 of the Companies Act 2006 (the "Act") to requisition a general meeting.  The directors of a company are required to call such a general meeting once the company has received requests to do so from shareholders representing at least 5 per cent. of such of the paid-up capital of the company that carries the right to vote at general meetings (excluding any paid-up capital held as treasury shares).  If multiple shareholders together requisition the meeting (such that their holdings are aggregated for the purposes of reaching the relevant threshold) the requests must be in substantively the same form (either on multiple substantially identical requests or by way of the relevant shareholders submitting a single joint requisition). The content of the request, timing and shareholder statements The relevant shareholder's request must state the general nature of the business to be dealt with at the meeting and may (but is not required to) include the text of a resolution (or resolutions) intended to be moved at the meeting.  Assuming the necessary formalities are complied with, the directors are required to call the meeting within 21 days of the requisition, with the meeting to be held not more than 28 days after the date of the notice of the meeting (although there are additional restrictions on the timing for the meeting for “quoted companies” under the EU's Shareholder Rights Directive 2007/36/EC, as implemented in the UK (the "SRD"), as implemented by amended provisions in the Act.  For quoted companies, there must be at least 14 or 21 clear days (depending on whether the company has passed the relevant enabling resolution at its most recent annual general meeting) between the date on which the notice of meeting is circulated and the date of the meeting itself). Shareholders representing at least 5 per cent. of such of the paid-up capital of the company as carries the right of voting at general meetings (excluding treasury shares) also have a right to require the circulation to shareholders of a statement (limited to 1,000 words) relating to the matters referred to in a proposed resolution to be tabled at the relevant meeting (or the business to be dealt with at the relevant meeting more generally) by the company.  Any such statement must be received by the company at least seven days before the general meeting.  It is generally the case (although there are certain limited exceptions) that the shareholder(s) who request the circulation of the statement will be responsible for the costs associated with its circulation, unless the company resolves otherwise.  In such circumstances, the company is not bound to comply and circulate the statement unless there is deposited with or tendered to it, not later than seven days before the meeting, a sum reasonably sufficient to meet its expenses in doing so (again, unless the company resolves otherwise). Annual general meetings of public companies In addition to the right to require resolutions to be put before a general meeting requisitioned under the Act for that purpose, shareholders of public companies can require specific resolutions to be put before a listed company's annual general meeting ("AGM").  The ownership threshold for such an action is the same as for requisitioning a general meeting as described above, although a notice requiring such motion(s) must identify the actual resolution(s) to be tabled at the AGM (rather than merely requiring the discussion of general business, as is permitted at a requisitioned general meeting) and must be received by the company at least six weeks before the relevant AGM or, if later, by the time that the notice of AGM is circulated by the company. I Have a Significant Shareholding: What Resolutions Can I Propose (or Block)? Binding, advisory and conditional resolutions Generally, specific resolutions, which have the result of effecting particular transactions, appointments or events relating to a company, elicit greater shareholder interest and engagement and are much more effective in terms of shifting shareholders out of the apathy that can be  prevalent in companies with disparate (especially retail investor heavy) registers.  Nonetheless, it is also possible for a shareholder (or shareholders acting together) to propose, and a company to pass, both advisory (sometimes referred to as "directive") and conditional resolutions.  An advisory resolution is one whereby shareholders either (i) request the directors undertake an action as an indication of their collective wishes (i.e. the wishes of a majority of shareholders that have voted on the relevant resolution(s)) but do not formally require the directors to do so (even though they may be able to as a matter of company law) or (ii) pass an ordinary resolution to request the directors to do something which they would be obliged to do had the resolution been proposed and passed as a special resolution. A resolution which is intended to be binding on the directors will often need to be passed as a special resolution as such a resolution will override the provisions of the company's constitution that give the board of directors the power to manage the business of the company.  As compared to ordinary resolutions, special resolutions require a higher voting threshold in order to be passed (75 per cent., rather than a simple majority) and require compliance with additional formalities in terms of notice requirements and restrictions on the ability of directors and shareholders to make amendments to them prior to or at the vote at the relevant meeting. It is also possible for shareholders to propose and approve both advisory and binding resolutions that in each case are conditional upon the occurrence of another event and/or the passage of time (although it is essential that the occurrence of the event(s) upon which the relevant resolution is conditional is capable of being objectively and irrefutably determined).  Accordingly, it is not possible to make a resolution conditional upon the occurrence of some vague or indeterminate event (although that is not to say the triggering event cannot itself be subject to some other approval); the issue is one of certainty.  Typical examples of such conditional resolutions include the adoption of new constitutional documents following a capital reorganisation or the application for the listing of the shares in a demerged business following the dividend in specie of that business to shareholders. Blocking resolutions A shareholder or shareholders holding 25 per cent. or more of a UK company can restrict certain actions by the company by preventing special resolutions being passed, the most relevant being (i) an off-market purchase by the company of its own shares (although it should be noted that recent developments in UK company law may impact the position going forward[2]), (ii) a reduction of capital (a technique commonly used to increase distributable reserves, subject to approval by the court in the case of public companies) and (iii) a company altering its constitution. Similarly, a shareholder or shareholders holding 25 per cent. or more of a UK public company will be able to block a takeover of that company being effected by way of a court approved scheme of arrangement (as such a scheme will require special resolutions to be passed).  In practice, a shareholder or shareholders holding less than 25 per cent. of a company's shares may also be able to prevent special resolutions being passed (because generally only votes cast by shareholders present in person or by proxy at the relevant shareholder meeting are counted and it is unlikely that all shareholders will attend and/or vote). Finally, it should be noted that a shareholder or shareholders holding 10 per cent. or more of a UK company will likely be able to block a takeover of that company by way of a contractual offer as the bidder would not be able to use the "squeeze-out" mechanism under Part 28 of the Act to remove that shareholder or shareholders and would likely not want to be left with a significant minority.  Accordingly, such a shareholding is likely to give the relevant shareholder "a seat at the negotiating table" in relation to any takeover offer. Executive remuneration Since 2002, UK company law has required listed public companies to produce and table a directors' remuneration report, which is voted on by shareholders at the company's AGM.  Although that vote is, at the moment, purely advisory and therefore a barometer of shareholder satisfaction, it has resulted in a number of high profile director resignations where there has been a significant vote against the remuneration report.  The UK Government is proposing to make changes to the directors' remuneration report requirements for public companies from 1 October 2013 such that (i) the directors' remuneration report will be split into two separate parts (an implementation report, detailing how the company's current policy has been implemented during the previous financial year, and a policy report, setting out the company's current remuneration policies for executives and restrictions on their salaries and benefits), (ii) the implementation report will remain subject to a shareholders' advisory vote every year and the policy report will be subject to a binding vote (by way of ordinary resolution) either whenever changes are proposed or at least every three years, and (iii) a company's approach to exit payments must to be included in the future remuneration policy and therefore made subject to the binding shareholder vote.  These changes are likely to give significant shareholders greater ability to influence public companies' remuneration policies and structures and give those shareholders a more tangible way to influence boards and press for change should they be dissatisfied with the performance and/or effectiveness of current management. Is the UK Takeover Code Relevant? As defined in the City Code on Takeovers and Mergers (the "Code"), persons acting in concert are persons who, pursuant to an agreement or understanding (formally or informally), cooperate to obtain or consolidate control of a company or to frustrate the successful outcome of another offer for the company, with control for these purposes meaning the acquisition of 30 per cent. of the voting rights in the target company.  If persons are deemed to be acting in concert there are important implications in terms of obligations to make a mandatory offer under Rule 9 of the Code and the price at which any offer for the relevant company is required to be made. The Code presumes that certain categories of person will be acting in concert unless the contrary is shown; however, the Panel Executive (which oversees enforcement of the Code) has confirmed[3] that it does not believe that the intention or effect of Rule 9 and the mandatory bid requirements is to act as a barrier to collective shareholder action (such as minority shareholders jointly seeking to influence the board or other similar activist strategies).  That said, persons who collectively work to requisition a general meeting to consider a “board control-seeking” resolution (or threaten to do so) will usually be presumed to be acting in concert, and almost certainly will be where they have aligned themselves prior to the announcement of the requisition.  A resolution will not normally be considered to be “board control-seeking” unless it seeks to replace the existing directors with directors who are not independent, and have a significant relationship with the requisitioning shareholder(s), with the result that the shareholder(s) would effectively be in a position to control the board.  It will also not normally be considered to be “board control-seeking” if the directors that are proposed to be appointed are independent non-executive directors and the requisitioning shareholder(s) are seeking their appointment in order to improve the company’s corporate governance. The Panel Executive has also specified some situations which will not, of themselves, lead to a concert part relationship, being: (i) discussions between shareholders about possible issues which might be raised with a company’s board; (ii) joint representations to a company’s board by shareholders and (iii) an agreement by shareholders to vote in the same way on a particular resolution at a general meeting (but see the potential disclosure issues noted above).  In addition, a proposed change to the manner in which a company is managed that does not involve changes to the board will not normally be considered to be “board control-seeking” unless the activist shareholders make it known that “board control-seeking” proposals will be put forward if the management changes are not implemented. The Panel Executive will presume shareholders putting forward “board control-seeking” proposals to be acting in concert with each other, their supporters as at that date and also with the persons proposed to be appointed as directors of the company concerned.  While the act of coming together may not trigger a requirement to make a mandatory offer if those “acting in concert” together hold less than 30 per cent. of the relevant company’s voting rights, they must be careful not to do so by further stake-building.  It is important therefore to be able to identify the size of the aggregate of the shareholdings concerned.  It is also often the case that appropriate standstill arrangements are entered into.  It is interesting to note that, although it is technically possible for the proposal of a “board control-seeking” resolution to result in the relevant shareholders having to make a mandatory offer for the company concerned, since the introduction in 2002 into the Code of the current provisions on collective shareholder action, the Executive has not required any such mandatory offer to be made. Are the Insider Dealing and Market Abuse Regimes Relevant? The nature of possible offences One of the most important questions to be considered prior to the acquisition of any shares is whether purchasing shares (in whatever quantity) will amount to an offence under the criminal insider dealing and market abuse legislation.  Offences can be committed both when an individual in possession of inside information deals in securities and when that person encourages others to do so. Insider Dealing Under the Criminal Justice Act 1993 (the "CJA") an offence is committed if an insider (i) deals in price-affected securities when in possession of inside information, (ii) encourages another to deal in price-affected securities when in possession of inside information, and/or (iii) discloses inside information otherwise than in the proper performance of his employment, office or profession.  However, it should be noted that all three offences can only be committed by an individual and only if he holds "inside information" as an "insider".  For these purposes, "inside information" means information which (i) relates to particular securities or to a particular listed company or companies (and not to securities or listed companies generally), (ii) is specific or precise, (iii) has not been made public, and (iv) if it were made public, would be likely to have a significant effect on the price of any securities.  There are a number of important uncertainties here: there is no definition or guidance in the CJA on what "specific or precise" means and/or what will amount to a "significant effect on the price of securities". Market Abuse In addition to the criminal regime under the CJA, the market abuse regime applies to both persons and bodies corporate, whether authorised or unauthorised, who abuse a prescribed market.  Market abuse can be committed by either one person acting alone or two or more persons acting jointly or in concert.  The relevant behaviour may be on-market or off-market and there are seven types of such behaviour, the most commonly referenced being engaging in insider dealing, misuse of information, and misleading behaviour and market distortion.  There is also an offence relating to the dissemination of false or misleading information.  It is important to note that the market abuse offences, in particular, can be committed without the any securities having been acquired and/or any profit having been made. Of particular relevance for activist shareholders is the market abuse offence of "misuse of information".  This offence is committed where behaviour (not falling within the market abuse insider dealing or improper disclosure behaviours outlined above) is (i) based on information which is not generally available to those using the market, but which, if available to a regular user of the market, would be, or would be likely to be, regarded by him as relevant when deciding the terms on which transactions in qualifying investments should be effected, and (ii) likely to be regarded by a regular user of the market as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected of a person in his position in relation to the market.  There is a good deal of subjectivity here in that an offence is only committed if the relevant conduct constitutes a failure to observe the standard of behaviour reasonably expected of market participants in the relevant position. Also of particular relevance to activist shareholders may be the offence of engaging in "manipulating transactions".  This is where behaviour consists of effecting transactions or orders to trade (otherwise than for legitimate reasons and in conformity with accepted market practices on the relevant market), which either give, or are likely to give, a false or misleading impression as to the supply of, or demand for, or as to the price of, one or more qualifying investments and/or secure the price of one or more such investments at an abnormal or artificial level.  In terms of what constitutes "legitimate reasons" for the purpose of the relevant provisions, it is accepted under the Financial Services Authority's (the "FSA") Code of Market Conduct that where a transaction (or series of transactions) are entered into so as to open a new position (rather than closing out a position to remove the relevant person's exposure to the relevant market) and where the transaction complies with the rules of the relevant prescribed markets (for example as regards reporting and disclosure in accordance with the DTRs, as described above) those facts are strong evidence that the relevant conduct has been undertaken for "legitimate reasons" and so falls outside the scope of the relevant market abuse regime. Issues for activist shareholders, etc. The most obvious concern in relation to a purchase of shares in the market by a stake-building activist is in circumstances where, through its enquiries prior to the purchase, it has received, and is therefore in possession of, non-public information from the company, or an insider such as a director, at the time of the purchase that would, if made public, be likely to significantly affect the company's share price.  However, the FSA has also warned that an activist strategy could itself constitute inside information. While it is clear that dealings by an activist on the basis of its own intentions and knowledge of its strategy would not be regarded as market abuse, there are other circumstances which give rise to concerns, such as situations where (i) a person trades on the basis of knowledge of another investor’s intentions or strategy, (ii) warehousing arrangements are used to avoid disclosures to the market that might otherwise be required and (iii) false rumours and expectations are generated to take advantage of the resulting share price movements. Of course, once an activist’s presence on a company’s share register is publicly identified and its activist strategy is publicly known, any potential market abuse issues are normally addressed because they should cease to be price-sensitive.  This the main reason why activists, once relevant shareholdings have been acquired, often use “open letters” to garner support from other shareholders, as opposed to private approaches to them before publicly launching an activist campaign. Penalties and enforcement If a person is found guilty of market abuse the FSA may (i) impose an unlimited fine, (ii) censure that person publicly, and (iii) apply to the court for a restitution order.  The market abuse civil regime supplements (and, to a certain extent, cuts across) the criminal regime for insider dealing under the CJA and the criminal offences of misleading statements and market manipulation under s. 397 of the Financial Services and Markets Act 2000 ("FSMA").  However, the civil market abuse regime under FSMA is wider in scope than the criminal regime and, in particular, effectively extends an insider dealing regime into the commodities and energy markets.  The existence of both a criminal and a civil market abuse regime means that various legislative provisions need to be considered in relation to any one set of facts (taking into account the differing burdens of proof) and may also mean the FSA has a choice as to whether to pursue a criminal prosecution or take civil action in respect of the same behaviour.  Against this legislative background, in recent years the FSA has adopted an increasingly robust approach to the investigation and prosecution of the market abuse offences and this approach is widely expected to continue and remain a focus of the FSA’s successor, the Financial Conduct Authority (the “FCA”), when it takes over from the FSA on 1 April 2013.  The FSA/FCA's approach on market abuse is generally perceived to be merging into a broader focus on standards of market conduct, and the trust and integrity issues.  Market participants should note that the FSA has recently secured criminal prosecutions for insider dealing (which it had not often prosecuted) and issued a number of high profile civil sanctions and sizeable fines under the market abuse regime. Should I Engage with the Current Board or Other Activists/Shareholders? Engaging with the current board and the UK Stewardship Code Engaging with the current board of the company and establishing a dialogue should normally be seen as a precursor to any more aggressive "activist" strategies, the emphasis being to protect and enhance overall shareholder value.  The UK Stewardship Code was introduced in 2010 and sets out good practice for institutional investors seeking to engage with boards of UK-listed companies.  The purpose of the Stewardship Code is to encourage dialogue between investors and the boards of UK-listed companies when shareholders intend to use their powers to make a company take notice of issues of concern to them.  It is therefore expected that a board will engage with all significant shareholders on a regular basis to offer an appropriate forum for their views to be aired.  In particular, it would be common for the board of a UK-listed company to engage in dialogue with significant shareholders before they reach or exceed the 3 per cent. and 5 per cent. thresholds referred to above and to gauge their interest before major transactions involving the company are undertaken; the intention of the Code being that the relationship between the board and significant shareholders is one of co-operation and constructive dialogue to maximise overall shareholder value. The Stewardship Code operated by the Financial Reporting Council (FRC) and adherence by shareholders to it is voluntary.    The FRC encourages all institutional investors to publish a statement on their website of the extent to which they have complied with the Code, and to notify the FRC when they have done so and whenever the statement is updated (a "comply or explain" approach). The FRC also encourages each institution to name in its statement an individual who can be contacted for further information and by those interested in collective engagement. Engaging with other shareholders An activist shareholder looking to agitate for change will first commonly use public records (both from the company's publicly disclosed information and/or previous shareholder filings, including DTR disclosures) to assess the size of other shareholdings and gauge (from public statements as mentioned above) the likelihood of various shareholders or groups of shareholders supporting its proposals or strategy. The next stage will often then be to engage with other significant shareholders.  However, there should be heighted sensitivity with respect to possible market abuse issues in relation to “joint strategies” by activists.  An activist may seek another’s support in numerous different ways, including (i) requesting permission to use its name in discussions with the company concerned, (ii) seeking a letter of support in relation to the activist’s proposals or strategy, (iii) agreeing a joint or co-ordinated stake-building strategy, (iv) seeking and agreeing non-binding letters of intent or legal undertakings to support a shareholder vote (and, perhaps, requiring the other to retain is shareholding ahead of the relevant shareholder meeting) and (v) requesting the other to join in and co-sign a meeting requisition to propose agreed resolutions, (which may also constitute “board control-seeking” proposals (as referred to above)). When engaging with other shareholders, the activist will need to confirm their willingness to be "wall-crossed" (i.e. be provided with potentially price-sensitive information) with respect to the activist’s proposals or strategy.  If they are so willing, any discussions prior to an announcement of a general meeting requisition or other matters that could constitute material price sensitive information should take place within the confines of appropriate confidentiality/non-disclosure and, possibly, standstill arrangements. Activists and other shareholders who come together to agree a joint or co-ordinated stake-building strategy in relation to company in the context of also adopting a joint activist strategy need to be fully aware of both the likely disclosure consequences of doing so and also the Code implications of potentially being treated as acting in concert.  Appropriately confidential discussions in connection with a properly disclosed and organised stake-building exercise are, of themselves, unlikely to constitute market abuse (although it is essential that such confidentiality be maintained and that information flows be carefully monitored) nor, of itself, is the actual stake-building (provided the disclosure rules are appropriately complied with).  Those involved need to be continually mindful of triggering a requirement to make a mandatory offer under the Code if they, and others “acting in concert” with them, together acquire 30 per cent. or more of the company’s voting rights. As mentioned above, once the general meeting requisition or other matters of concern have been announced and are then public knowledge, by definition, the information shared and/or that was the subject matter of the relevant discussions should cease to be price-sensitive, cleansing the parties and freeing them to deal in the relevant securities as they wish.  That said, any discussions post-announcement of a requisition, for example seeking non-binding letters of intent or legal undertakings to support a shareholder vote, should be done on the basis of "equality of information" to all shareholders, a principle enshrined in the DTRs. The Company is Being Mismanaged; What Other Actions Can I Take? Derivative claims  Any shareholder can make a derivative claim in the name of the company, for a wrong done to the company, in order to obtain relief on behalf of the company.  However, a claim can only be made for negligence, default, breach of duty and/or breach of trust of a director.  The director(s) in question need not have benefitted personally for such a claim to be made.  The shareholder must file evidence establishing the basis for a claim and obtain the court’s permission to continue.  However, the court will not give permission if the impugned action has or is likely to be authorised by the majority of independent shareholders. Unfair prejudice Any shareholder can apply to court if a company’s affairs are being conducted in a manner that is unfairly prejudicial to some or all of the shareholders in that company, including the applicant.  If the claim is proved, the court may take such action as it thinks fit.  The types of order that could be issued include, but are not limited to, an order regulating the future conduct of the company or, most commonly, providing for the sale or purchase of shares in the company by the complainant.  In contrast to a derivative action, an unfair prejudice claim is designed to compensate the particular aggrieved shareholder(s).

 
 
[1]   See the guidance from the Financial Services Authority of 19 August 2009. [2]   In mid-February 2013 the UK Government published its response to the Nuttal Review on company own-share buybacks (available at: https://www.gov.uk/government/consultations/employee-ownership-and-share-buy-backs-consultation-on-implementation-of-nuttall-review-recommendations).  In particular, the Government has elected to adopt a recommendation to change the requirement under the Act to obtain a special resolution for an off-market share purchase to an ordinary resolution.  It is expected that this change will come into effect through secondary legislation during the course of 2013.  In relation to public companies, it is possible that the Institutional Investor Committee (which includes bodies such as the Association of British Insurers) may nonetheless request that a special resolution be passed (as it does currently in relation to on-market share purchase authorities). [3]   See the Panel’s Practice Statement 26 dated 9 September 2009 (available at: http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/ps26.pdf  
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  We will continue to monitor these and other related developments and keep you updated as both legislation and market practice unfolds.  Gibson Dunn's lawyers are available to assist you with any questions you may have relating to the subject matter of this alert.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers in the Firm's London office: Jeffery Roberts (+44 20 7071 4291, jroberts@gibsondunn.com) Selina S. Sagayam (+44 20 7071 4263, ssagayam@gibsondunn.com) Gareth Jones (+44 20 7071 4266, gjones@gibsondunn.com)  
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