U.S. companies are capitulating faster than ever to outspoken investors.
Sysco Corp. took all of six days to give board seats to activist shareholder Nelson Peltz and his Trian Fund Management partner Josh Frank after they went public with their campaign. Carl Icahn landed two directorships at Cheniere Energy Inc. just 18 days after requesting them, and two more at Freeport-McMoRan Inc. after 41 days.
Activist Keith Meister got a seat on the Yum! Brands Inc. board 167 days after pushing for one. Four days later, Yum announced it was separating its China business, a move his Corvex Management had been urging.
The quick reactions show how companies are deciding that sometimes it’s better to compromise than mount aggressive defenses. Putting an activist on a board early avoids the costs, distractions and reputational damages risked in a potential proxy fight — and brings behind closed doors contentious discussions about spinoffs, buybacks or asset sales.
It also reflects the heightened pressure on corporate directors to show they’re acting on behalf of shareholders and willing to buck management.
“Companies are well-aware of the time, distraction and expense involved in defending against an activist proxy fight, and many are looking for avenues to avoid those fights in a way that benefits both sides,” said David Hunker, head of shareholder activism defense at JPMorgan Chase & Co.
This year, companies have settled within 56 days on average after an activist demands board representation, compared with 67 days last year and 74 days in 2013, data from Activist Insight show.
What’s more, activists were successful about 74 percent of the time last year in getting companies to make at least some of the changes they requested, according to the report, compiled for an October conference hosted by Schulte Roth & Zabel, a law firm that often works for activists.
Even this year’s fight at DuPont proved to be a cautionary tale that hasn’t been lost on corporate America. Former CEO Ellen Kullman won a proxy battle to keep Peltz and his three other nominees off her board in May, only to watch the stock tank and lose her job five months later. DuPont shares have climbed more than 20 percent since Kullman announced her retirement.
Kullman’s resignation, on Oct. 5, came hours after Trian co-founder Ed Garden said the firm had increased its stake. DuPont’s interim CEO Ed Breen is already making changes likely welcomed by Trian, including expanding cost cutting, re-evaluating capital spending and holding talks on a potential deal involving its agriculture unit.
Trian declined to comment.
A slew of other companies quickly granted directorships to activists this year. Barry Rosenstein’s Jana Partners got two seats at ConAgra Foods, 20 days after it had sought an overhaul following the packaged food maker’s disappointing acquisition of Ralcorp Holdings Inc.
Baxter International Inc. gave one seat and a say on another to Dan Loeb’s Third Point within 56 days.
Citrix Systems Inc. added Jesse Cohn, who oversees U.S. activism for Elliott Management Corp., to its board 47 days after he asked.
“These guys don’t bite if you listen to them. They’re there to help out and give a different viewpoint,” said Ken Squire, who runs the 13D activist tracking fund and website 13D Monitor. “Debate is good in a board room, and without an activist, there’s often no debate.”
