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PROGRAM AGENDA 9:00am Welcome and Introduction Stuart Cable – Goodwin Procter LLP 9:10am Recent Trends and Developments in Shareholder Activism Joseph Johnson – Goodwin Procter LLP Mark Harnett – MacKenzie Partners Barrett Golden – Joele Frank, Wilkinson Brimmer Katcher 9:45am Hypothetical Case Examination 10:15am Audience Q&A 10:30am Closing PRESENTERS Stuart M. Cable Partner Goodwin Procter LLP 617.570.1322 scable@goodwinprocter.com Stuart Cable represents as outside general counsel public and private companies involved in technology, software, life sciences, professional and business services, alternative energy and financial services. Mr. Cable also represents private equity and venture sources investing in such companies and investment banks serving such industries. Mr. Cable has extensive experience representing public companies, where he counsels Boards of Directors and management teams on corporate governance, disclosure, compensation and securities law matters. Mr. Cable’s transactional practice is focused on mergers and acquisitions, private equity recapitalizations, venture capital private placements and corporate finance. Mr. Cable is listed annually in the Best Lawyers in America, and in Chambers USA: America’s Leading Lawyers for Business (Corporate/M&A – Tier 1). Mr. Cable earned his J.D. from Columbia Law School, M.B.A. from Tuck School of Business Administration at Dartmouth College and A.B. from Dartmouth College. Barrett Golden Partner Joele Frank, Wilkinson Brimmer Katcher 212.355.4449 ext. 120 bgolden@joelefrank.com Barrett Golden develops and implements strategic financial communications for clients across a wide range of industries and special situations. She joined Joele Frank, Wilkinson Brimmer Katcher at its inception in January 2000. In recognition of her achievements, Ms. Golden was named to PR Week’s 2007 “40 Under 40” List. Among Ms. Golden's projects involving shareholder activism include representing Convergys in its response to JANA Partners; Coinstar in its proxy contest with Shamrock; The Brink’s Company in defending against Pirate Capital and separately against MMI; VAALCO in defending against Nanes Delorme Partners and Pilatus Energy; Glatfelter in response to Pirate Capital; Oglebay Norton in its defense against an unsolicited offer from and proxy fight against Harbinger Capital; InfoSpace in its response to Sandell Asset Management; MedImmune in its response to Matrix Asset Advisors; Gateway in its response to Firebrand Partners and Harbinger Capital; Houston Exploration in its response to various proposals submitted by JANA Partners; Western Gas, and separately Ligand Pharmaceuticals, in response to Third Point; and VISX’s successful defense against multiple proxy contests initiated by Carl Icahn. Ms. Golden graduated from the University of Virginia with a B.A. in government. Post graduation, she attended the University of Virginia’s McIntire Institute for Business. Mark Harnett President MacKenzie Partners, Inc. 212.929.5877 mharnett@mackenziepartners.com Mark is Co-founder of MacKenzie Partners, Inc. and formerly Senior Vice President and Co-founder of the Proxy/M&A Group at Dewe Rogerson, Inc., the predecessor firm to MacKenzie Partners. Before that, Mark was a legislative assistant to Susan Engeleiter, Wisconsin State Senator in 1983. Mark holds a B.A. Government from Georgetown University, Washington, DC and a J.D. from the University of Wisconsin Law School, Madison, Wisconsin. MacKenzie Partners, Inc., founded in 1990, is a full service proxy solicitation and financial relations consulting firm based in New York City with offices in Palo Alto, Los Angeles and London. MacKenzie Partners is the leading proxy and tender offer advisor in control contests and information agent in friendly and hostile tender and exchange offers for equity and debt. Representative transactions include: Target/Pershing Square, NRG/Exelon, Yahoo/Icahn, Water Asset Management /Insituform, Midwest Air/AirTran/TPG and Northwest Airlines;Express Scripts/CVS/Caremark; H J Heinz/Trian, Engelhard/BASF; Topps/Crescendo/Tornante and Madison Dearborn; and, Unocal/Chevron and CNOOC. Joseph L. Johnson, III Partner Goodwin Procter LLP 617.570.1633 jjohnson@goodwinprocter.com Joe Johnson is a partner in the firm’s Business Law Department and chair of its M&A/Corporate Governance Practice. Mr. Johnson has substantial experience in the merger and acquisition area, representing both buyers and sellers. He has recently represented Global Imaging Systems, Inc. in connection with its sale to Xerox; Ansys, Inc. in connection with its acquisitions of Fluent and Ansoft Corporation; Stride Rite in connection with its sale to Payless; and Clayton Holdings in its sale to Greenfield Partners, LLC. Mr. Johnson frequently advises investment funds and institutional investors, such as Highfields Capital Management and Abrams Capital, concerning their investments in public and private issuers and with respect to issues in the corporate governance area. In particular, he has represented Highfields in connection with its investments in Clear Channel, First American Corporation, Circuit City and Morgan Stanley, and Abrams in connection with its activities with Juno Lighting and USA Mobility. Mr. Johnson has been selected for inclusion in Chambers USA: America’s Leading Lawyers for Business and The Best Lawyers in America. Mr. Johnson earned his J.D. from Boston College Law School and his B.A. from Vassar College. Recent Developments and Trends in Shareholder Activism October 7, 2009 Joseph L. Johnson III, Esq. Partner Goodwin Procter LLP 7 Brave New World For Public Companies Challenging economic environment has put increased pressure on Boards of Directors across industries to increase shareholder returns. Several recent legislative and corporate governance initiatives will fundamentally change the rules governing the election of public company directors. Shareholder activism remains robust and has become an accepted method for an investor to implement change and increase its return on its investment. “Traditional” funds (such as Fidelity, Franklin Mutual and T. Rowe Price) have increasingly been involved in activist situations. 8 The Emergence Of Majority Vote Requirements Approximately seventy percent of the S&P 500 voluntarily adopted majority vote rules. The provisions are generally adopted either as a by-laws or as a board policies. Shareholders strongly prefer by-laws and they are common. A nominee standing unopposed is elected only if votes cast in favor exceed votes withheld. Shareholders object to an “absolute majority” requirement. Directors must offer to resign if they fail to receive a majority, but the board is not formally obligated to accept the resignation. Some corporations use irrevocable resignation letters, but this is a minority position. Directors who tender resignations cannot participate in the Board’s deliberations as to whether to accept their own resignation. These provisions do not apply in contested elections (i.e., situations in which the number of nominees exceed the number of open board slots). Institutional investors are likely to pressure issuers to expand the reach of majority vote provisions to the remainder of the S&P 500, and then down-market to mid-caps and small caps. Recently released data shows a significant increase in the percentage of director nominees who received high percentages of shareholder votes cast in opposition in director elections during the first eight months of 2009. Although the vast majority of director nominees continue to be elected with little opposition, for companies with director votes available through August 2009, 9.8 percent of unopposed director nominees had at least 20 percent of shares voted against them or withheld, up from 5.5 percent in 2008. 9 Brokers No Longer Have Ability to Vote Shares in Routine Director Elections Pursuant to NYSE Rule 452 (the “Ten Day Broker Vote Rule”), brokers historically could vote street name shares on “routine” shareholder proposals (including uncontested director elections), if beneficial holders fail to provide voting instructions at least ten days prior to the scheduled meeting. On average, 20% of shareholder votes supporting uncontested director elections have been cast by brokers pursuant to this Rule. Recently adopted amendments, effective as of January 1, 2010, have amended the list of nonroutine items on which a broker may not vote uninstructed shares so that the list includes all uncontested director elections. Thus, brokers have lost the power to vote shares in uncontested director elections. Thus, a company can not count on receiving support of shares held by brokers in routine directors elections. This could become important in “Just Say No” campaigns, especially if a company has adopted a majority vote requirement for directors. The impact of Rule 452 on uncontested elections of directors turns on the percentage of beneficial owners who do not provide voting instructions and the resulting percentage of broker discretionary votes. The SEC release adopting this change noted “the impact of the broker vote on the election of directors has become increasingly significant.” Companies should examine their historic proxy voting record carefully, and determine how easy will it be for shareholders to obtain a majority withhold vote for any of its directors. For example, according to recent data collected by PROXY Governance, Inc., in 2009, at least 84 directors at 48 companies failed to attain majority support from shareholders through August 2009. However, there were 284 director nominees who were elected with less than 60 percent of shares cast in support and 473 nominees elected with less than 65 percent support of the shares cast. Many of these directors would likely not have received majority support if broker discretionary votes had not been counted. 10 Proposed Proxy Access Rules The SEC has proposed amendments to the federal proxy rules which would require, under certain circumstances, a company to include in the company’s proxy materials a shareholder’s, or group of shareholders’, nominees for director. The proposed rule has the following principal elements: Available to a shareholder or group of shareholders that has owned 1% of the voting securities of a large accelerated filer (3% or 5% for smaller companies) continuously for a one-year period. Number of shareholder nominees could be up to 25% of the board size at each election. Would effectively supersede more restrictive proxy access provisions imposed under state law or the company’s governing documents. In addition, proposed amendments to Rule 14a-8 would reverse the current SEC interpretation that permits companies to exclude from their proxy materials shareholder proposals relating to director nominations. The proposals also contain a number of related rule amendments intended to facilitate proxy access, including exemptions from the proxy rules for certain solicitations made by shareholders seeking to form a nominating group or support for a nominee, as well as continued Schedule 13G eligibility and a safe harbor from “affiliate” status under the securities laws for a nominating shareholder or groups. 11 Proposed Proxy Access Rules The SEC has stated that the proposals are an attempt to remove “unnecessary barriers” under the federal proxy rules to the ability of shareholders to “hold boards accountable through the exercise of their fundamental right to nominate and elect members to company boards of directors,” and that the SEC’s overall goal is to “improve the corporate proxy process so that it functions, as nearly as possible, as a replacement for an actual in-person meeting of shareholders.” The Release states that its proposals are issued against the backdrop of the current financial crisis, which it asserts has raised serious concerns about the accountability and responsiveness of boards of directors to shareholders. The proposed proxy access rules received over 500 comments on its proposal. Public companies have urged the SEC not to adopt the proposed rules but allow companies to deal with the issue on a case-by-case basis through Rule 14a-8. Labor unions, public pension funds and Democratic congressional leaders have strongly supported the proposal. On October 2, 2009, SEC Commissioner Elisse Walter, indicated that the shareholder access rules will not be in place for 2010 annual meetings for calendar year-end companies. She stated that “although I can’t give you a definitive date, I expect we will likely move forward and consider an adopting release sometime in early 2010.” In her speech, she indicated that she was “giving careful consideration” to whether the rules needed to be adjusted to provide companies with more flexibility to adopt their own shareholder access rules. However, she stated “I have a less favorable reaction to those who suggest that directors should have unfettered choice.” While impossible to predict, it appears likely that some form of federal proxy access will be in place for 2011. 12 Implications of Shareholder Access If shareholder access is adopted, how will boards and the market respond? Which companies will be targets for shareholder challenges and why? What type of shareholders will avail themselves of the shareholder access rules? Activist or more “traditional” shareholders? How will election contests under new rules be different than those conducted today? Will boards be more likely to “settle” these type of contests? In which circumstances will shareholders be successful? What are the implications to a board of having one or more shareholder candidates elected? 13 Overview and Trends For Shareholder Activism In a soft M&A environment hostile activity reached record levels in 2008 and have continued in 2009: U.S. announced M&A volume in 2008 and 2009 down nearly 40% compared to previous years. At the same time, level of hostile deals in the U.S. increased representing 23% of all announced deals in 2008 (well above the percentage over the last 5 years with the next highest percentage being 14% in 2005). This trend has continued in 2009 with this percentage increasing to 24.27%. Activists are continuing to pursue proxy fights with success The number of proxy fights in 2009 increased with 132 YTD (as opposed to 125 in 2008, 108 in 2007, 100 in 2006 and 56 in 2005). In contested situations, dissident shareholders were successful in obtaining at least one Board seat in over 70% of contested situations. 14 Shareholder Activism Since 2004, activist agendas have resulted in: Sale transactions in approximately one-third of cases. Changes in management/board in approximately one-half of cases. Influencing sales transactions in approximately 40% of cases (i.e., transaction blocked or price changed). Changes in corporate governance in approximately one quarter of cases. 15 Responses By Public Board Of Directors Review charter documentation and understand takeover protections a company has and where it is vulnerable – consider appropriateness of a “poison pill” Know deadline for shareholder nominations and proposals Monitor trading value and changes to shareholder rights Know your shareholders and meet with them (in good times and bad) Evaluate and update long-term strategic plan 16 Shareholder Activism and Proxy Trends October 7, 2009 Mark Harnett President MacKenzie Partners 17 Proxy Fights Are on Track for Another Record Year in 2009 140 Proxy contest activity is expect to be strong in 2010 as many investors seek to improve shareholder returns Primary sources of activism: 120 100 80 60 40 Event-driven hedge funds Corporate governance activists Unions State pension funds Mutual funds 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 18 Common Characteristics of a Proxy Contest Activists target companies with: Poor or mediocre share price performance Perceptions of entrenched Board or Board not holding management accountable Significant cash balance In the bio/pharma sector, failed clinical trials or FDA approval Activist shareholders often offer solutions to fix the broken target company Some have relevant operational experience, some have none While dissidents generally are not seeking control, but are nominating more than one candidate Hedge Funds are willing to go for control – Third Point, Harbinger, Pershing Square and Crescendo 19 Who Are The Activists? “The Wolf Pack” Appaloosa Atticus Capital Barington Capital (Jim Mitaritonda) Blue Harbour Group Breeden Partners (Richard Breeden) Bulldog Investors (Larry Seidman) Cannell Capital Chapman Capital (Robert Chapman) Crescendo Partners (Eric Rosenfeld) Dolphin Partners Elliott Associates ESL Partners (Eddie Lampert) Harbinger Capital Highfields Icahn Partners (Carl Icahn) JANA Partners Mason Capital MMI Investments Oliver Press Pershing Square (Bill Ackman) Philip Goldstein Pirate Capital (Tom Hudson) PL Capital Ramius Capital Relational Investors (Ralph Whitworth) S.A.C. Capital (Steven Cohen) Sandell Asset Management Shamrock Soros Southeastern Capital Management Steel Partners (Warren Lichtenstein) Third Point (Daniel Loeb) TCI (The Children’s Investment Fund) TPG-Axon Tracinda (Kirk Kerkorian) Trian (Nelson Peltz) ValueAct Capital (Jeffrey Ubben) Viking Capital …but …butmany manyothers otherspile pileon! on! 20 Proxy Advisory Firms Are Very Influential in Proxy Contests Risk Metrics (aka Institutional Shareholder Services (ISS)): Leading proxy advisory firm in terms of size and influence >1,200 clients: mutual funds, corporate and public pension funds, trusts, other fiduciaries Many institutions vote their shares based solely on ISS’s recommendation Strong focus on corporate governance, but will also evaluate strategic and financial issues Will meet separately with both sides in a proxy contest as part of its research process Glass Lewis & Co. Significant new competitor of RiskMetrics-ISS 8 of 10 largest mutual funds and top 5 U.S. public pension funds subscribe Stronger focus on financial integrity and valuation issues than ISS, but significantly less influence on vote outcomes Usually does not meet with Company representatives in a proxy contest, but does host a “forum” (sometimes public) where both sides debate Proxy Governance Provides recommendations on an “issue-by-company” basis Views proxy issues in the context of company-specific metrics (relative financial performance, business environment, strength of management and corporate strategy, quality of corporate governance, etc.) 21 Proxy Contest Evaluation Criteria RiskMetrics focuses on two central questions: Have the dissidents met the burden of proof that change is warranted at the company? If so, will the dissidents be better able to effect such change versus the incumbent board? Criteria for Board control: Dissidents must have: Well-reasoned, detailed business plan Transition plan describing how change of control will be effected Identification of qualified and credible new management team RiskMetrics will compare the dissident’s and incumbent management’s plans, board and management team in order to arrive at their vote recommendation Criteria for minority Board position: Burden of proof RiskMetrics imposes on the dissidents is lower Dissidents detailed plan of action not required Dissidents do not have to prove that their plan is superior Dissidents must prove that change is preferable to the status quo and that the dissident slate will add value to board deliberations by considering the issues from a different viewpoint than the current board members 22 Activists Increasingly Run Short Slates Improving Their Success Rate 100 80 60 40 20 Board Representation Stockholder Proposal 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Number of outright victories, partial victories or settlements by the dissident as a percentage of al proxy fights where an outcome has been reached. Board Control Withhold on Director(s) All Others 23 Shareholder Proposals Submitted in 2009 Cover a Variety of Issues Proposal Advisory vote on compensation Majority vote to elect directors Repeal classified board Shareholders may call special meeting Report on political donations and policy Adopt principles for health care reform Adopt cumulative voting Adopt sexual orientation anti-bias policy Independent board chairman Issue sustainability report Set GHG emissions reduction goals Limit pay at government support company Eliminate supermajority provision Re-Incorporate in North Dakota Require equity awards to be held through retirement Vote on executive death benefits Lead director Report on internet privacy/freedom of expression Report on/reduce greenhouse gas emissions Commit to/report on board diversity Sub-Total Top 20 Shareholder Proposals % of Total 10% 8% 7% 6% 4% 4% 4% 3% 3% 3% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 65% There were 192 different types of proposals submitted in 2009 24 Support for the Top 5 Proposals Top 5 Proposals % of Shareholders Voting in Support > 50% > 40% and < 50% < 40% Advisory Vote on Compensation 33.3% 54.4% 12.3% Majority Vote for Election of Directors 56.3% 37.5% 6.3% Repeal Classified Board 87.5% 12.5% 0.0% Shareholder to Call a Special Meeting 58.5% 31.7% 9.8% Report on Political Donations & Policy 0.0% 4.8% 95.2% Voting results published as of early September indicate wide support for advisory votes on compensation and revisions to director election practices Support for political and social initiatives received limited support Proxy Advisory Firms’ support of independent board chairman has given these proposals traction in 2009 and may increase in 2010 25 Update on Proxy Access Implementation of the SEC’s Proposed Proxy Access rule has been delayed The SEC is currently reviewing more than 500 comment letters received from issuers, investors and other interested parties Support for Proxy Access Has Been Mixed CalPERS and CII have supported its adoption Vanguard opposed it as encouraging nuisance votes and a distraction to management Activists like the option but are unlikely to use it in the long run Real acquirers in unsolicited takeover situation will not use it Universal ballots – it is not clear if they will be more confusing or simpler for shareholders (Pershing Square) 26 2010 Proxy Outlook Companies and Private Equity groups will return to deals as capital gets allocated to support deals by banks or greater proportion of equity with less leverage Shareholder proposals on compensation and takeover defenses will remain high in number and support Unsolicited offers will return as financing becomes more available to strategic buyers Shareholders may again start holding up deals (management buyouts, leveraged buyouts or other transactions) that they deem inadequate for their long-term value plays Activists may try to take advantage of opportunistic buyouts and hold up deals as well 27 Shareholder Activism in the Current Environment October 7, 2009 Barrett Golden Partner Joele Frank, Wilkinson Brimmer Katcher 28 Today’s Presentation Part 1 Trends in Shareholder Activism Part 2 IR/PR Preparation 29 The Current Environment Increasing pressure across industries to improve shareholder returns Equity market dislocation Credit crisis Weak economy Loss of confidence in the effectiveness of Boards and management Erosion of corporate defenses Dismantling of staggered boards Majority voting Elimination of shareholder rights plans 30 Shareholder Activism and the Current Environment Activism now an accepted means of driving returns Activism remains robust 134 proxy contests 2009 YTD v. 125 in 2008 v. 56 in 20051 Many activists with multiple campaigns1 Board candidates are more sophisticated, knowledgeable and reputable; not simply a fund representative Dedicated activist funds still attracting new investments (Pershing, Breeden, CalPERS) “Mainstream” investors have supported hedge fund activists, putting pressure on target boards to settle Icahn: 4 campaigns in 2009; 9 campaigns in 2008 Ramius: 8 campaigns in 2009; 9 campaigns in 2008 Steel Partners: 4 campaigns in 2009; 16 campaigns in 2008 Activists are more sophisticated Well-advised on legal, proxy and IR/PR Running more impressive director slates Waiving corporate governance flag and proposing specific plans “Taking the high road” and avoiding personal attacks 31 Examples of Vocal Activists: The “Wolf Pack” 3G Capital Partners Appaloosa Atticus Capital Barington Capital (Jim Mitaritonda) Blue Harbour Group Breeden Partners (Richard Breeden) B. Riley Bulldog Investors (Larry Seidman) Cannell Capital Chapman Capital (Robert Chapman) Clinton Group Crescendo Partners (Eric Rosenfeld) D.E. Shaw & Co. Dolphin Partners Elliott Associates ESL Partners (Eddie Lampert) GAMCO (Mario Gabelli) Harbinger Capital HBK Highfields Icahn Partners (Carl Icahn) JANA Partners Loeb Partners Millennium Management MMI Investments Oliver Press Pershing Square (Bill Ackman) Philip Goldstein Pirate Capital (Tom Hudson) PL Capital Ramius Capital Relational Investors (Ralph Whitworth) SAC Capital (Steven Cohen) Sandell Asset Management Shamrock Steel Partners (Warren Lichtenstein) Third Point (Daniel Loeb) TCI (The Children’s Investment Fund) TPG-Axon Tracinda (Kirk Kekorian) Trian (Nelson Peltz) Tudor Investment ValueAct Capital (Jeffrey Ubben) Viking Capital …but …butmany manyothers otherspile pileon! on! 32 Activist Investors: Not Just Hedge Funds Traditional mutual funds Vanguard (letter to numerous companies advocating for corporate governance changes) Fidelity (Delta Air Lines, Google) Franklin Mutual (Weyerhaeuser) Legg Mason (Yahoo!) Oppenheimer (Take-Two Interactive) Stadium Capital (Builders FirstSource) T. Rowe Price (Laureate Education MBO, Diversa sale to Celunol) State pension funds CalPERS (vocal about severance and change-of-control provisions; Watch List) Union/Union influenced groups Change to Win (CtW) (Bank of America, Whole Foods, Beazer Homes, CVS/Caremark) Teamsters (Coca-Cola) United Transportation Union (CSX) 33 Activism Attacks Can Take Many Forms Verbal attack Criticizing management during the Q&A portions of conference calls, at conferences and during analyst presentations Threat or launch of proxy fight Written attack Precatory proposal (a non-binding shareholder proposal) Short slate (minority of the board) Full slate (entire board) Slate sizes have been increasing Letter campaign (private letters can later become public) SEC filings (change from 13-G to 13-D) News statements, releases Withhold / Vote No campaign − Goal is to embarrass the board and bring attention to shareholders’ grievances Creative investing SWAP agreements Debt positions DIP financing Other Litigation Books and records Unsolicited proposals Activists Activistsdo donot notneed needto tolaunch launchaaformal formalproxy proxycontest contest ininorder to exert pressure and “send a message.” order to exert pressure and “send a message.” 34 What Do Activists Want? Common Demands Then…. Capital allocation / structure (increased leverage, share repurchases, special dividends) Motorola (Icahn), InfoSpace (Sandell), Western Gas Resources (Third Point) Maximize value (breakup or sale of the company or division) change strategies) Six Flags (Daniel Snyder), Heinz (Trian), Coinstar (Shamrock) Governance (executive compensation, Board composition, management change) Circuit City (Highfields), TD Ameritrade (JANA Partners, S.A.C. Capital), Houston Exploration (JANA Partners) Strategic direction (improve business operations, Home Depot (Relational), El Paso (Selim Zilkha), New York Times (Harbinger) Spin-offs Brink’s (MMI), Kerr-McGee (Icahn), Weyerhauser (Franklin) …And Now Strategic direction (improve business operations, change strategies) Governance (executive compensation, Board composition, management change) Yahoo! (Icahn), CPI (Ramius), Children's Place (Ezrah Dabah) Spin-offs Target (Pershing Square), Convergys (JANA Partners), Amylin (Icahn and Eastbourne) Chemed (MMI), Ceridian (Pershing Square) M&A (block merger transaction, seek increased consideration) ALY / Bronco Drilling (Third Avenue, Alipine), Florida Public Utilities / Chesapeake Utilities (Energy West), Thoma Bravo / Entrust (Arnhold and S Bleicheroeder Advisers) M&A (block merger transaction, seek increased consideration) Novartis / Chiron (ValueAct), Mylan / King (Icahn), Micron / Lexar (Elliott, Icahn) With Withcredit creditmarket marketdislocation, dislocation,activists activistshave haveaasmaller smallertool toolbox, box,but butthey theyremain remainactive activeand and often focus on operational improvements and strategy, rather than financial engineering. often focus on operational improvements and strategy, rather than financial engineering. 35 Multiple Demands Are Common Icahn / Kerr-McGee One-time extraordinary dividend Elect dissident directors to Board Pursue strategic alternatives Barington / Steve Madden Present detailed turnaround plan Create independent committee to assess strategic value of company Declassify the Board Remove poison pill Icahn / Blockbuster Repurchase shares Elect dissident directors to Board Sell chemicals business K Capital / OfficeMax Share repurchase Add independent director Pursue strategic alternatives Expand Board and nominate independent directors Pursue strategic sale Spin off 65% of company owned restaurants and restructure its real estate assets Share repurchase Trian Group / Heinz Spin off cable and publishing divisions Increase share repurchases Expand Board and nominate independent directors Pershing Square / McDonald’s Spin-off Tim Hortons Sell company owned stores to franchisees Sell real estate Share repurchase Icahn / Time Warner Switch to annual election of Board members Rescind poison pill Eliminate super majority voting provisions Pershing Square / Wendy’s Knightspoint / Ashworth Pirate Capital / Cutter & Buck Elect dissident directors to Board Pursue various strategic alternatives Knightspoint / Sharper Image Increase Board size Elect Knightspoint directors to Board 36 As of 07/13/2007 Today’s Presentation Part 1 Trends in Shareholder Activism Part 2 IR/PR Preparation 37 Dealing with Dissident Shareholders What’s different about communications? Opposition Company, Board and management team go under a microscope Greater scrutiny by investors and media No strategy or statement goes unchallenged Directors and management open to public criticism Similar to a political campaign Battle for shareholder votes Rhetoric can often be heated Third party advocates needed Strategic, “rapid response” communications required Critical to stay on message and control the forum for delivery Need optimal coordination to succeed Everything Everythingyou yousay saycan canand andwill willbe beused usedagainst againstyou. you. 38 Every Constituency Counts These constituencies communicate with each other Competitors Competitors Regulators, Political Customers Customers Success hinges on targeting key influencers within each constituency Communications must be consistent, coordinated and focused on a common goal RiskMetrics, Glass RiskMetrics, Glass Lewis, Proxy Lewis, Proxy Governance Governance Company Company Financial/Business Financial/Business &&Trade TradeMedia Media Employees Employees Shareholders Shareholders Analysts: Analysts: Sell-Side Sell-Side Industry Industry 39 Core Documents in a Contest Shareholder “fight” letters SEC filings Primary and fastest method to reach all audiences and directly communicate key messages Standby statements Used in meetings with investors and proxy advisory firms Helps educate media and other key constituencies Press releases Letters, press releases, presentations, statements can all be filed as 8-K (Company), 13-D/13-DA (dissident) or 14A (both Company and dissident) 8-K filings are used to “lower the volume” Presentations Proxy cards sent by dissident and Company to shareholders multiple times, accompanied by “fight letters” First fight letter includes multiple themes; subsequent letters often single-themed Can be used as press releases or 8-K filings Consider whether Company letters are public or private (can also use press releases to send to reporters) Responsive Ancillary communication materials Special section on Company website – e.g. op-eds, letters to/from government officials, community leaders, potential 3rd party supporters, retirees, other constituencies; advertisements; etc The Theactual actualdocuments documentsused usedand andthe thefrequency frequencyof ofcommunications communications will willdepend dependon onthe theprocess processand andthe theintensity intensityof ofthe thedebate. debate. 40 Different Fights – Similar Tactics Motorola / Carl Icahn (3 months) Roy Disney / Disney1 (4 months) Trian Group / Heinz (7 months) Press Releases 9 11 25 Fight Letters 7 5 3 Ads 1 0 1 Employee Letters 4 not public not public Other Letters 4 3 not public SEC Filings 27 19 66 Presentations multiple 1 7 1The proxy fight lasted 4 months, though Roy Disney continued his public attack of the Disney Board for many more months 41 Swing Factor: Proxy Advisory Firms RiskMetrics (formerly known as Institutional Shareholder Services/ISS): Glass Lewis & Co. Leading proxy advisory firm in terms of size and influence More than 1,200 clients: institutions, mutual funds, corporate and public pension funds, hedge funds, college endowments and other fiduciaries Many institutions strictly follow RMG recommendations when voting their shares Reviews issues separately with both sides in a proxy contest before releasing its recommendation to clients RMG report will be issued approximately 10-14 days before meeting Often RMG can significantly influence 20-30% of the vote in a proxy contest Recently began opining on tender offers Major competitor of RMG, now owned by Ontario State Teachers Many of the largest institutions, mutual funds, index and public pension funds subscribe to Glass Lewis (generally also subscribe to RiskMetrics) Hosts a public forum called “Proxy Talk” – both sides speak to Glass Lewis clients in select proxy contests (aka public debate) Glass Lewis can influence 10% or more of the vote in a proxy contest May make different voting recommendations in proxy contests from Risk Metrics, but still favors minority representation for dissident shareholders Proxy Governance Provides recommendations on an case-by-case basis Will meet separately with both sides, usually telephonically, in a proxy contest RiskMetrics RiskMetricshas hasgenerally generallysupported supportedhostile hostiletransactions, transactions,recommended recommendedAGAINST AGAINST transactions transactionsopposed opposedby byhedge hedgefunds fundsor orother othershareholders, shareholders,and andrecommended recommended FOR 42 FORhedge hedgefund fundminority minorityslates. slates. Team Structure Need Optimal Coordination and Speed Advisory team Lawyers Bankers Proxy solicitor IR/PR Advisors Information generally shared across all lines Rapid response Imperative to respond in the same news cycle Develop themes that can be used across all communications Discussions are often heated, but the objectives are consensus and consistency Make decisions quickly and think through all ramifications All communications materials must be vetted by legal 43 Board of Directors Keep the Board “in the loop” Distribute daily media clips and sell-side analyst reports Distribute all press releases Alert Board to communications surrounding proxy contest Individual directors may be targets of attacks Like the Company, directors may be put under the microscope Phone numbers and addresses of Board members have been used in dissident advertisements Board representatives join management in attending RiskMetrics meeting and possible select shareholder meetings Calendar of Directors and management is confidential Never disclose time and location of Board meetings 44 IR Tactics and Considerations in a Contest Regular, targeted one-on-one meetings Major vehicle for communicating with investors and sell-side analysts No substitute for in-person meeting with the CEO and/or executive team, board members Controlled forum for delivering messages Large format or group meetings must be carefully considered Level of control is significantly diminished Company can be exposed to a “mob” mentality Easy for opposition to cause trouble Communicate regularly with dissident Direct contact via one-on-ones and telephone calls Maintain polite dialogue Indirect conversations via large, supportive shareholders Gain insights as to dissident’s concerns (legitimate?) and time horizon Monitor conference call participants Sell-side needs to be educated about proxy fights Arbs are a special case Source of information 45 PR Tactics and Considerations in a Contest Respond to inquiries with designated spokespeople Emphasis is on responses, not necessarily answers Imperative to respond in same news cycle Use “on background” conversations, advisors as appropriate, to ensure context Provides greater perspective than can usually be accomplished “on the record” Direct reporters to specific third parties to add credibility and validate core messages Focus on the print media Major national and international press Wires Local press Use television and other electronic media selectively Greater risk as there is a greater lack of control Strongly recommend media training Done right, can drive news cycle Consider editorial boards Can help set the tone that a paper takes in covering a continuing story 46 What to Do Now Establish and leverage core team Assess/address your vulnerability: Strategic plan and catalysts available Cash position relative to allocation of capital back to shareholders Structural defenses Corporate governance policies Key proxy deadlines Stay close to your investors (IR is the “early warning system”) Know who your key shareholders are and what they want at every stage of the process Consider need to ramp-up IR/PR efforts Goal is to ensure investors and other third parties understand strategies for value creation prior to an attack / unsolicited takeover On earnings calls, monitor the queue and be on alert for unfamiliar investors asking questions or downloading transcripts Identify and cultivate third party supporters Identify spokespeople and conduct training as appropriate In a fight, independent board representative(s) will be needed in addition to management 47 Appendix Appendix 48 About JF,WBK: Proven Specialists In Financial Communications Strategies Established January 2000 Areas of expertise: Investor relations and financial public relations Transaction communications Crisis communications 60 employees and growing Qualified as New York State Minority and Women Owned Business Straightforward, unvarnished advice High success rate: 70% of our clients stay on after project is completed 24 x 7 x 365 accessibility – “in the trenches” Named Crisis Agency of the Year for 20081 Senior level counsel Partners Joele Frank Andy Brimmer Steve Frankel Barrett Golden Dan Katcher Matthew Sherman Judith Wilkinson Managing Directors / Directors Eric Brielmann Jed Repko James Golden Meaghan Repko Jeremy Jacobs Annabelle Rinehart Tim Lynch Andrea Salas Jamie Moser Jim Shaughnessy Andrea Priest Andrew Siegel Sharon Stern Kelly Sullivan Ed Trissel Averell Withers 49 Recent Activities In Addition To Media Outreach, Earnings Prep and Investor Relations for Ongoing Clients Friendly M&A Aurora Capital / HLTH (Porex) JBS S.A. / Pilgrim’s Pride Danaher / Life Technologies LS Power / Dynegy Frontier Communications / Verizon Communications Oracle / Sun Microsystems Pulte Homes / Centex Lone Star Funds / New City Residence Investment Merck / Schering-Plough Eli Lilly / ImClone Systems The Dow Chemical Company / Rohm & Haas / Hass Family Trust CSR / SiRF Technology Vector Capital / Aladdin Knowledge Systems Contested M&A Royal KPN / iBasis Exelon / NRG Energy Agrium / CF Industries / Terra Industries EMC / Data Domain / NetApp PepsiCo / PepsiAmericas Vista Equity Partners / Accel-KKR / SumTotal Systems Gilead Sciences / CV Therapeutics / Astellas Pharma EDF / MidAmerican / Constellation Energy King Pharmaceuticals / Alpharma Vishay Intertechnology / International Rectifier Electronic Arts / Take-Two Microchip Technology, ON Semiconductor / Atmel Shareholder Activism / Proxy Contest Litigation Support / Regulatory Action / “Toxic Torts” Alnylam Elan OrbusNeich Amylin Pharm iPCS Onyx Pharmaceuticals Dialectic Capital / California Micro Devices Carl Icahn / Lions Gate Arnhold and S. Bleichroeder Advisors / Thoma Bravo / Entrust Ramius / CPI Committee of Concerned Shareholders of The Children’s Place (Ezra Dabah, former CEO) / The Children’s Place The Kistefos Group / Trico Marine Pershing Square / Target (2009, 2008) Carl Icahn, Eastbourne Capital / Amylin Warren Kanders / Federal Signal MMI Investments / Chemed Eugene Melnyk / Biovail (2009, 2008) TCI, 3G / CSX Shamrock / Coinstar JANA Partners / CNET Networks Management Changes Hill-Rom Arbinet Huron Consulting Comverge Omnicare Dover RRI Energy Federal Signal Thermo Fisher Scientific Finish Line Bankruptcy / Restructuring Accredited Home Lenders Arclin BI-LO Bruno’s Supermarkets CCS Medical Chemtura CIT Group Energy Partners MPTN (Foxwoods) Mervyn’s Movie Gallery Muzak Pierre Foods Pilgrim’s Pride Velocity Express Washington Mutual 50 JF,WBK clients in bold. As of 09/25/09 Transaction Communications Shareholder activism / Proxy fights Mergers and acquisitions Friendly transactions Hostile takeovers: defense or offense Spin-offs IPOs 51 Shareholder Activism / Proxy Fight Experience Proxy Fights Shareholder Activism Arnhold and S. Bleichroeder Advisors / Thoma Bravo / Entrust Tang Capital / Vanda Pharmaceuticals Accipter / Impax Labs Springbrook, Soundpost, Lyrical / MCG Capital First Manhattan, Coghill Capital / Aspect Medical Systems Wexford Capital / Energy Partners JANA Partners / Convergys Wynnefield Capital / White Electronic Designs Legatum Capital / Sonus Networks Ramius / Actel Harbinger Capital / Cleveland Cliffs / Alpha Natural Resources Relational / Lexmark Arbor Realty / CBRE Highfields / First American Carlson Capital / Energy Partners Barrow, Hanley, Mewhinney & Strauss / South Financial Group B. Riley / Transmeta Barington Capital / Syms Shamrock / Panera Bread JANA Partners, S.A.C. Capital / TD Ameritrade Sandell Asset Management / Sybase Schwartz Investment Counsel / Citizens Republic Bancorp Barington Capital, Clinton Group / Griffon Sandell Asset Management / Fair Isaac Dialectic Capital / California Micro Devices Carl Icahn / Lions Gate Boston Avenue, Spencer Capital (Value Investors for Change) / MRV Communications Ramius / CPI Committee of Concerned Shareholders of The Children’s Place (Ezra Dabah, former CEO) / The Children’s Place Kistefos / Trico Marine Pershing Square / Target (2009, 2008) Carl Icahn, Eastbourne Capital / Amylin Warren Kanders / Federal Signal MMI Investments / Chemed GAMCO / CH Energy TRT Holdings / GAMCO / Gaylord Entertainment PL Capital / Bancorp Rhode Island (2009, 2008, 2007) Anthony Thompson / Grubb & Ellis TCI, 3G / CSX Nanes Delorme Partners, Pilatus Energy / VAALCO Energy Shamrock / Coinstar JANA Partners / CNET Networks Crescendo Partners, Myca Partners / Charming Shoppes Home Builders Association of GA / Builders Insurance Group Water Asset Management / Insituform Technologies Wattles Capital Management / Circuit City Carl Icahn / Motorola (2008, 2007) MMI Investments, Steel Partners / The Brink’s Company 52 Select examples JF,WBK clients in bold. As of 09/17/09 Transaction Experience Friendly M&A Contested M&A Aurora Capital / HLTH (Porex) JBS S.A. / Pilgrim’s Pride Danaher / Life Technologies LS Power / Dynegy Anthony International (Aurora Capital Group) / VAL S.p.A Catterton Partners / StriVectin Thoma Bravo / Entrust Frontier Communications / Verizon Communications Oracle / Sun Microsystems Pulte Homes / Centex Merck / Schering-Plough Lone Star Funds / New City Residence Investment Gilead Sciences / CV Therapeutics / Agrium The Dow Chemical Company / Rohm and Haas / Haas Family Trust NRG Energy / Reliant Energy White Energy / Asia Special Situation Acquisition SIRIUS Satellite Radio / XM Satellite Radio CSR / SiRF Technology Vector Capital / Aladdin Knowledge Systems CenturyTel / Embarq PNC / National City Banco Santander / Sovereign Bancorp Wells Fargo / Wachovia Eli Lilly / ImClone Systems Open Text / Captaris Aon / Benfield Group Berwind Group / Wellness Pet Food / Catterton Partners Royal KPN / iBasis EMC / Data Domain / NetApp Agrium / CF Industries / Terra Industries Exelon / NRG Energy PepsiCo / PepsiAmericas Equity One / Ramco-Gershenson Properties Trust Vista Equity Partners / Accel-KKR / SumTotal Systems Astellas Pharma / CV Therapeutics Rodman & Renshaw / Cowen EDF / MidAmerican / Constellation Energy Microchip Technology, ON Semiconductor / Atmel Elliott Associates / Epicor Software King Pharmaceuticals / Alpharma CVS Caremark / Longs Drug Stores / Walgreens Microsoft / Yahoo! Liberty Shipping Group / International Shipholding Corporation Nuance Communications / Zi Corporation InBev / Anheuser-Busch / Grupo Modelo Vishay Intertechnology / International Rectifier Electronic Arts / Take-Two Waste Management / Republic Services / Allied Waste Cadence Design Systems / Mentor Graphics United Technologies / Diebold O’Reilly Automotive / CSK Auto Blockbuster / Circuit City Pier 1 / Cost Plus NRG Energy / Calpine SkyWest / ExpressJet Spin-offs / IPOs / Listings Angiotech / API Colfax ArvinMeritor / Light Vehicle Systems The Brink’s Company / Brinks Home Security First American / Financial Services Hillenbrand / Hill-Rom, Batesville Casket 53 Select examples JF,WBK clients in bold. As of 09/21/09 Crisis Communications Restructurings Bankruptcies Management changes Earnings surprises Litigation / Regulatory actions 54 Restructuring / Bankruptcy Experience Accredited Home Lenders Allegheny Energy Ames Department Store Anchor Glass Archway & Mother’s Cookies Arclin Atmel Bausch & Lomb BI-LO Bradlees Bruno’s Supermarkets Calpine Carlyle Capital CCS Medical Charter Behavioral Health Systems Charter Communications Charter Medical Chemtura CIT Group Citizens Communications CMS Energy CrossHarbor / Yellowstone Club Cummins Edison International Encompass Services Energy Partners Guilford Mills Greatwide HealthSouth Hospital Partners of America Independence Air Krispy Kreme Lang Holdings Mashantucket Pequot Tribal Nation (Foxwoods) The Meditrust Companies Mervyns MGM Mirage Milacron Movie Gallery Muzak National Golf Properties NRG Energy Pierre Foods Phar-Mor Pilgrim’s Pride Portland Trail Blazers Resorts International Revlon (MacAndrews & Forbes) Saint Vincent Catholic Medical The Spiegel Group United Subcontractors Velocity Express Vencor / Ventas Vlasic Foods Washington Mutual World Health Alternatives Zenith Electronics (For LG Electronics) Ziff Davis Media 55 Select examples As of 09/25/09 Crisis Experience Litigation Support / Regulatory Actions Alnylam Amylin Pharmaceuticals Arch Chemicals Atmel Biota Cannery Casino Resorts Cincinnati Financial Elan iBasis IFF iPCS Motorola NTP Onyx Pharmaceuticals OrbusNeich Sithe Energies Spectranetics SpotRunner St. Jude Medical Syms Timex University of Rochester MC Washington Mutual WellCare Wells Fargo Western Refining Management Change Earnings Surprise / Restatement Arch Chemical Ligand Pharmaceuticals Arthrocare The Mills Corporation Cinram Nuance Covansys Silicon Valley Bank Griffon WellCare Huron Consulting Agere Systems Ambac Ameristar Casinos Arbinet Arthrocare Artesyn ArvinMeritor Atmel Avaya BI-LO Brocade Communications Cadence Design Central Pacific Financial Charming Shoppes Charter Communications CNET Networks Coinstar Comverge Comverse Technology Cyberonics Dover Downey Financial ev3 Federal Signal Finish Line Global Industries Griffon Hill-Rom Huron Consulting Idearc Insituform Jones Apparel Group Marsh & McLennan Maxim Integrated Products The Mills Corporation Motorola Movie Gallery Omnicare Openwave Systems Papa John’s Paxson Communications PRG-Schultz RRI Energy Savient Seagate Technology SLM (Sallie Mae) Sonus Networks Sovereign Bancorp Snap-On Stabilus Standard Pacific Sunrise Senior Living Thermo Fisher Scientific Topps Weyerhaeuser White Mountains Insurance World Health Alternative XOMA 56 Select examples As of 9/17/09 140 East 45th Street 37th floor New York, NY 10017 Tel: 212-355-4449 Fax: 212-355-4554 info@joelefrank.com www.joelefrank.com 57
