Getting Active

musical chairs

According to Barclays, shareholder activists launched a record 86 campaigns in the second quarter, which brought the H1 activist campaign total to 147, also a record.

The interesting thing about the uptick in shareholder activism is the lack of success in winning board seats

• Activists won 74 board seats this year (-20% YOY)

• Many notable companies, ie Disney and Crown Castle, successfully defended themselves from board shake-ups

• Proxy fights that went to a final vote saw an 11% win rate for activists, a weak haul compared to 65% just a year ago

Read the Barclays summary here

Today I want to cover two high profile campaigns involving well-known consumer companies

perfect match

Earlier this summer, Starboard Value, a $9.2B activist firm, built a 6.6% stake in Match group, the parent co for Tinder and Hinge.

Shares were up 7.5% on the news, and Match cut 6% of staff due to activist pressure, leading to $13M in cost savings

Starboard is a top tier activist hedge fund:

• 151 campaigns with an average return of 25.5%

• Return profile jumps to 43.9% in campaigns that had an operational thesis (46 of 151 campaigns)

On July 15th, news broke that Starboard sent a letter to Match highlighting operational improvements and capital allocation strategies to generate shareholder value.

The letter focused on product innovation and cost cutting in conjunction with a share repurchase plan.

• The elephant in the room is Match’s revenue growth slowing from 20% to an expected 6% in 2024. Starboard believes there is still room for double digit growth under an innovative CEO in Bernard Kim.

  • Tinder currently accounts for 55% of sales while Hinge brings in 15%

• In addition to weak top line growth, spending has continued to increase. Starboard believes that if revenue growth cannot get back to double digits, then expenses need to be cut so margins can improve

• Cumulative EBITDA margins for the past five years remain are 33.5%. Starboard is targeting 40%+

Once the operational wrinkles are straightened out, Starboard wants a more aggressive share buyback plan in place.

Match recently committed 75% of free cash flow for buybacks, but Starboard wants the company to also use an additional $900M of available capacity

Other activist investors that launched public campaigns at Match this year include Elliott Management and Anson Funds

coldest brew

Earlier this summer, Elliott built a sizable stake in Starbucks

Just yesterday, CNBC reported that settlement talks, if successful, could result in Elliott managing partner Jesse Cohn taking a board seat at the coffee giant

• The settlement includes current Starbucks CEO Laxman Narasimhan keeping his job

• The deal would also add governance improvements alongside board expansion

• An agreement to the settlement is complicated by former CEO Howard Schultz’s public opposition to settling with Elliott Management

Elliot isn’t the only shark in the water

Starboard recently built a stake as well, sending $SBUX up 2% on Monday

Just a few hours ago, however, Starbucks announced that Narasimhan would be stepping down as CEO, and Brian Niccol (Chipotle CEO) would be replacing him

Starbucks shares soared 13% in pre-market trading while Chipotle took a 10% hit

This blockbuster move suggests that Starbucks is not interested in a deal with Elliott, as Narasimhan’s job was secure under the proposed settlement

Taking a step back, the level of publicity around activist deals this year stands out in contrast to other years

At the National Investor Relations Institute Conference, Stephanie Hill (Mellon Investments) made an insightful remark

One of the catalysts for increased activity comes from the SEC

Activist funds have gotten a boost due to an SEC rule change allowing investors to use a “universal proxy card” (UPC)

• The UPC lists all the board members nominated for election on a single card for investors to vote on, rather than separate cards for a company’s management and another for activist investors.

• The cards are now mandatory in all elections where there is an actual competition for board seats.

• The advent of UPC means investors can mix and match director candidates, raising the chances for an activist to get at least one of the board seats it’s vying for.

To dive deeper, check out these articles on Nelson Peltz’s war with Disney

Quartz: What to know about Disney CEO Bob Iger, Nelson Peltz, and their billion-dollar board fight

The Wrap: Disney Wins Board Vote Against Trian Fund Management, Blackwells Capital

Headlines

• Equinox-owned Blink Fitness filed for bankruptcy with intentions to sell. Reuters article here

• Insight Partners tops $10B as it nears final close on Fund XIII. VCJ article here

• Antler doubles down on SE Asia with $72M fund. TechCrunch article here

• WNBA’s worst team becomes most valuable at $208M. FOS article here