Marc Weingarten, a partner at Schulte Roth & Zabel LLP (“SRZ”), serves as co-chair of the firm’s global Shareholder Activism Group and is also a member of the Investment Management Group. Marc focuses his practice on mergers & acquisitions, leveraged buyouts, corporate governance, securities law, investment partnerships and is one of the leading lawyers representing activist investors. He was selected twice as “Dealmaker of the Year” by The American Lawyer for his representation of Cerberus Capital Management in its acquisition of a controlling interest in GMAC from General Motors and most recently for his work on some of the fiercest shareholder activism campaigns and proxy contests in the market.
Eleazer Klein, a partner at SRZ and co-chair of the firm’s global Shareholder Activism Group, assists activists and companies with matters ranging from corporate governance and control to proxy contests and defensive strategies. Ele also practices in the areas of securities law, mergers and acquisitions, and regulatory compliance matters. In addition, he is well-known for his expertise since the early 1990s in the development and implementation of alternative investment structures for private equity investments and, specifically, the structuring and negotiating of private investments in public equity, or PIPEs, and related products including registered direct offerings, convertible 144A offerings, reverse mergers, equity lines and SPACs.
Christopher Skroupa: How have the objectives/goals of activists changed over the past few years? Are they still mainly pushing for a return of capital or do they have more complex goals?
Marc Weingarten: While we’re still seeing activists press for improved capital allocation practices and other balance sheet fixes, the more recent trend is toward operational activism seeking top line revenue growth, margin improvement and greater efficiency. Many companies with excess cash have already engaged in buyback programs on their own, although no doubt in part to fend off activists. Operational activist campaigns are more complex, because they get into the granular details of how a business is run.
Skroupa: For a few years, we’ve been hearing about how activism is going to take off globally. Has it?
Eleazer Klein: To an extent. There are foreign markets that have become active, such as Australia, and most markets have seen a marked increase in activity. But markets outside of the United States have not yet reached the tipping point where activism has become mainstream. Nonetheless, it does continue to grow year-to-year in pretty much all developed markets. As activists continue to concentrate their efforts and take a more media-centric approach overseas, we can expect activism to become more established in the global markets. For example, we have seen more and more activist investors eyeing opportunities in the United Kingdom and Europe. In 2014, SRZ expanded its shareholder activism practice into the United Kingdom, where the firm has had an office since 2002. In November, I was in London as the firm hosted a seminar on “Shareholder Activism in the UK.” At the event, we discussed current issues impacting activist investors and target companies in the United Kingdom and Europe.
Skroupa: What are some of the new challenges facing activist investors? Are there a scarcity of “good” targets, leading activists to propose competing plans or rush into certain targets?
Weingarten: There will always be relative underperformers in every industry, and so we don’t see any coming shortage of attractive targets. And, sorry to say, there are still a lot of companies with entrenched boards and managements and poor governance practices. One of the biggest challenges in today’s activist environment is not competition among activists or rushing into quick decisions, but rather staying the course in a campaign instead of accepting a quick settlement which may not fully accomplish objectives.
Skroupa: Have activists become more willing to have their own employees/representatives on their slates?
Klein: Although it seems to be slightly more common for activists to include their own representatives on their director slates, it is still very much a case-by-case decision. There’s an enormous informational imbalance in many boardrooms, where outside directors really know very little about the detailed operations of the business, so they are dominated by management. It can help address that imbalance to have the activist in the boardroom, who has done months of due diligence and has access to the capabilities and knowledge of the activist team.
Skroupa: How has engagement with activists by companies changed in recent times? Are they more willing to come to terms with activists?
Weingarten: When an activist calls, top executives will now pick up the phone. Companies have learned that you can’t just ignore activists and hope they go away. But while some companies are genuinely considering input from activists, other companies seem to be more focused on taking some token action to get rid of activists rather than substantively addressing the problems identified.