January 30, 2015
Gibson, Dunn & Crutcher LLP is pleased to present its first year-end Activism Update reviewing shareholder activism involving U.S. public companies during 2014. 2014 was a busy year for activist investors – our survey covers 64 activist campaigns involving U.S.-listed companies with equity market capitalizations of greater than $1 billion.
The Market Environment
The 2014 market environment provided fertile ground for activists to push for companies to engage in acquisitions, divestitures, spinoffs, and other strategic transactions, to return capital, and to consummate other common activist initiatives, such as management changes:
- Global M&A volume was approximately $3.5 trillion for 2014, versus approximately $2.2 trillion for 2013. Of the campaigns studied in this Activism Update, approximately 61% pushed for acquisitions, divestitures, spinoffs, and other strategic transactions; and
- Corporate cash balances remained stable in 2014, with an aggregate estimated cash balance of $1.37 trillion for U.S. public companies at September 30, 2014. Of the campaigns studied in this Activism Update, approximately 22% pushed for return of capital.
Against this backdrop, activist funds are now reported to manage approximately $200 billion. With more capital, activists can accumulate larger positions and are able to bear the costs of expensive proxy campaigns and litigation. In light of the ability of investors to sustain proxy contests and litigation and the increasing tendency of proxy advisory firms, long-only institutional investors, and research analysts to challenge company management and strategy, many companies are choosing to settle formally with activists or adopt positions consistent with activist demands. Of the campaigns studied in this Activism Update, 19% included formal settlement agreements granting board representation to activists. In many other cases, companies, whether as a result of the activist campaign or otherwise, took some action consistent with positions advocated by the activist investor. Only 11% of the campaigns studied in this Activism Update proceeded with a proxy campaign through the conclusion of a special or annual meeting.
Other Interesting Trends
The 64 activist campaigns covered by our survey demonstrate several other interesting trends:
- Activists are frequently launching activist campaigns with less than 5% equity stakes in companies and, relatedly, are doing so at companies with larger market capitalizations. Of the campaigns studied in this Activism Update, 39% commenced with activists holding less than 5% equity stakes and 22% involved companies with equity market capitalizations of greater than $20 billion;
- We are seeing more instances of multiple activists targeting the same companies, whether concurrently or sequentially. Approximately 15% of the companies in our survey faced separate activist campaigns from multiple activists and 7% faced campaigns from multiple activists working in coordination with one another; and
- Of those campaigns in which an activist sought board representation, at least some change in the board composition occurred nearly 77% of the time.
Two other noteworthy practice observations: first, despite the general publicity garnered by activist investors in 2014, we are still finding that activists and companies more often than not engage privately, with public communication only after private efforts at resolving matters amicably have failed; and second, investors are increasingly employing derivatives to build stakes rapidly without triggering certain reporting requirements, including reporting requirements under The Hart-Scott-Rodino Antitrust Improvement Act and Schedule 13D.
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Activist investing in 2014 was marked by an increasingly dynamic, sophisticated and well-capitalized activist investor base. Our inaugural Activism Update is aimed at assisting clients seeking to better understand activism by remaining current on activist developments and trends. We look forward to providing you with our mid-year update later this year. We hope you find this Activism Update useful.
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)
Saee Muzumdar (212.351.3966, smuzumdar@gibsondunn.com)
Andrew Kaplan (212.351.4064, akaplan@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)
© 2015 Gibson, Dunn & Crutcher LLP
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