As companies are entering the annual general shareholders meeting (AGM) season, we are seeing more shareholder activism and battles for corporate control surfacing. Last year shareholder activism was quieter as COVID-19 disrupted business operations, causing many uncertainties in the market. Hence, many activists scaled back to let the companies and its management team navigate the impact and focus on ensuring its employees’ safety and well-being. As we enter 2021 and begin looking for an economical and business recovery, it seems like shareholder activism are coming back in force again, and in many cases the companies may be under attack by more than one activist shareholder.
According to Lazard, globally the number of activist campaigns continues to elevate in 1Q21. In the US, there’s also a significant rebound, with 37 new campaigns (up 48% YoY and approaching ~50% of all US activity in 2020) and accounting for 70% of all global activity. In Taiwan, we also noted several proxy fights have surfaced this year, including Teco (1504 TT/TW), United Integrated Services (2404 TT/TW), Federal Corporation (2102 TT/TW), and Concord Securities (6016 TT/TW).
How does company manage an activist situation?
Again, companies do not always consider themselves a target of activist shareholder until they become one, and the preparation always started after the campaign is launched and often time could be too late. Hence, it is crucial for IROs and management to be prepared for the possibility of an activist approaching. Whether or not companies believe they are a target of an activist, they should have an SOP response as part of their normal investor relations efforts.
When it comes to identifying a company as a target, our observations and experiences show that activists are generally looking for a reason to blame or a “hook”, something they believe is negatively impacting the company’s valuation and that they could help to improve. Hence, companies whose financial performances or valuations that have remained low should be more “concerned” about that they are more likely to be targeted. In particular, companies with low management ownership should be more cautioned. Our analysis shows that of all the 1,740 listed companies in Taiwan, 18% of companies have management ownership less than 10%. Companies checking these two boxes are seen as highly potential target companies for activists.
In many cases, most common attack angles from activists include 1) management & board (over-boarding, lack of oversight and independence, low attendance record), 2) balance sheet management (too much cash or idle assets, low leverage, highly capitalized), 3) business decision and operation (poor business performance, limited business synergies, questionable acquisition or divesture).
There are a number of practical steps that companies and its IROs need to take in the case of an activist attack, which include assembling an activism response team that may involve multiple parties (senior management, IRO, general counsel, outside legal counsel, financial advisor, public relations firm, proxy solicitor, etc.), stock surveillance for activist presence in the stock and closely monitor who is moving in and out of the company, amending the company’s bylaws to enhance protection, and continuous communication with existing shareholders to gather support. For more details of best practices, please refer to our previous volume on Inside Investor Relations Volume 14 – Investor relations and shareholder activism.
Proxy solicitation for institutional investors
With increasing influence of shareholder activism and proxy advisory firms (i.e. Institutional Shareholder Services In (ISS) and Glass, Lewis & Co., LLC (Glass Lewis) - (for better understanding of proxy advisors, please refer to our previous volume on Inside Investor Relations – Volume 17 – What is a proxy advisor?), proxy solicitation has become a process and tool that companies use to connect with shareholders to tell their companies’ story, making sure to maximize voter response and to support the company in the case of proxy fights vs. dissidents or activists. In such cases, it is recommended that companies to hire experienced advisory firm to help with proxy solicitation. Experienced proxy solicitor firms will help companies to assess its vulnerability, analyzes its ownership base, monitors trading activity, organizes a strategic response and provides communication support to proxy advisors and major shareholders to alleviate the effect of an unexpected situation and ensure the most optimal outcomes are achieved.
QIC is pleased to announce that it has formed a strategic alliance with global shareholder engagement and corporate governance advisory firm, Georgeson, to provide its suite of proxy-related services to corporates in Taiwan. Established in 1935, Georgeson is the currently the No. 1 proxy solicitation advisor in Asia and Europe according to Bloomberg’s 2020 Global Activism League Table. The cooperation with Georgeson will enhance QIC’s ability to provide comprehensive advisory to Taiwan-listed corporates with Georgeson’s expertise in solicitation strategy, strategic shareholder engagement, corporate governance analysis, vote projection, and insights into investor ownership and voting profile. If you are interested in knowing more details, please reach out to us.
Contact: yvonnehuang@qtumic.com