Protecting against Shareholder Activism

The Situation

An investor group led by a client’s founder, who previously served as chairman and CEO of the company, disclosed it had accumulated an 11% equity stake in a long-time LHA client company. Initially the investor group claimed the share purchases represented “an attractive investment opportunity,” while both calling attention to the significant decline in the company’s share price since appointing a new CEO several years earlier and highlighting the stock-price gains during former management’s years of leadership. However, following unfulfilled requests for meetings with company directors, the investor group made public its intention to replace the board of directors with its own slate through a formal consent solicitation. The investor group stated that once in control of the board, it intended to install its members as executives of the company.

LHA’s Solution

• Facilitated selection of a proxy solicitation firm.
• Arranged meetings/conversations with institutional holders to ascertain views of the company and “soft sound” opinions about the investor group and support for current management.
• Investigated an earlier attempt by the lead investor in the group to take control of a competitor company to anticipate next steps and learn what worked and what did not.
• Worked with a core group consisting of company management and advisors to develop key messages as well as communications strategies and tactics.
• Developed a detailed story board of management’s accomplishments highlighting tangible results under the new CEO that provided the basis for news releases, Fight Letters, media outreach and SEC filings, including the consent revocation document itself.
• Documented that the stock’s decline was largely in line with industry performance during the then-recessionary period and drew a comparison to a past recession with a greater market-share loss under former management.
• Prepared communication vehicles that were professional in tone and factual in content, and pursued a strategy of responding to the investor group’s SEC filings and public announcements when appropriate.
• Added a personal element for employees through a series of weekly YouTube videos with the CEO speaking on various topics.
• Counteracted the investor group’s initial upper-hand with the media by arranging interviews with management and providing reporters with facts and counter-arguments.
• Arranged an investor conference call with slides immediately upon the consent revocation document became effective, which put forth the arguments contained in the document and requested stockholders to vote in favor of current management.
• Assisted in arranging a series of one-on-one meetings with institutional investors, mostly in person via a nationwide and European road show but also by phone.
• Utilized strong relationships with many of the company’s top shareholders to complement the proxy solicitation firm’s efforts in gaining intelligence on the fund’s view of the proxy battle, and its voting intention.
• Assisted with the strategy to reach and influence each of the three leading proxy advisory firms.

LHA’s Results

Through personal meetings and effective communications, the client gained recommendations from all three leading proxy advisory firms for stockholders to vote to retain the current management and board of directors and reject all proposals made by the investor group’s consent solicitation. This was followed by the investor group’s SEC filing announcing termination of its consent solicitation, withdrawal of its slate of director nominees and a disbanding of the group. At the time of that filing, other than its own votes, the investor group received votes totaling only 6% of company’s outstanding shares.