IN-DEPTH: Activists and their targets see value in coming to terms
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Settlements at U.S. targets saw a 15% increase in 2024 as both activists and the boards they pursue become more skilful in weighing up the outcome and risks of a potential proxy fight.
According to Diligent Market Intelligence (DMI) data, 60 such agreements were reached with primary and partial focus activists last year compared to 52 in 2023 and flat on the volume of deals inked in 2022.
Primary- and partial-focus activists also managed to secure more seats via settlement with 88 gained in 2024, compared to the 83 secured via this method in the prior year.
“For the most part, the number one factor is that the company side and the activist side have both become more sophisticated in understanding the outlook and whether something is worth fighting or not,” said Ele Klein, partner at law firm Schulte Roth & Zabel.
2024's biggest settlements
Elliott Management recorded some of the biggest wins in the period, with 11 seats won out of 14 sought across five settlements. The activist had greatest success at Southwest Airlines, one of the so-called ‘Big Four’ U.S. carriers, inking an agreement that saw it take five seats on the board some four months after the campaign was made public. The Elliott effect was still being felt after the turn of the year, with Southwest announcing two C-suite resignations in January and the laying-off of around 1,700 staff the following month. In other settlements, Elliott came away with seats on the board of both Match Group and at Phillips 66 where the dissident returned in early March this year to nominate a slate of directors as well as a non-binding proposal to introduce annual director elections. In other 2024 deals, Elliott secured a single seat on the boards of Etsy and Sensata Technologies.
Starboard Value also made ground via the method last year securing seven seats after hammering out deals with three U.S.-based targets. Jeff Smith's settlement success began in January when it gained two board seats and other concessions at restaurant operator Bloomin’ Brands. Another two seats followed in May in an agreement with benefits services provider Alight while the year was rounded off with a deal made with Healthcare Realty Trust that saw three new directors named.
Although Elliott was the only activist to secure five seats in a single settlement in the period, Glenview Capital Management came close coming away with four seats on the board of CVS Health in a November agreement that also provided the investor with access to key confidential documents.
Saddle Point also recorded a three-seat win in a March agreement at Advance Auto Parts while Fund 1 Investments also saw three directors added at Citi Trends in a February agreement.
In some of the two-seat wins of 2024, Carl Icahn took a pair of board seats at JetBlue Airways less than a week after disclosing a holding of almost 10%. Icahn’s other settlement success saw two of his candidates granted seats at American Electric Power, though not without the Federal Energy Regulatory Commission raising questions about the growing role played by activist shareholders at U.S. utilities.
The fastest route
While the three-day turnaround of Icahn's settlement at JetBlue was notable, deals are generally being arrived at quicker.
“There are more settlements and they are settling faster,” Damien Fisher, senior managing director at Evercore, told DMI.
Indeed, DMI data show that formal settlements inked in 2024 took an average 26.7 days to hammer out from the day the demand for board seats became public, compared to 27.5 for the previous year.
“Sometimes these settlements are just because they’re reading the tea leaves, reading the room,” said Peter da Silva Vint, managing partner at Jasper Street Partners. “I think that the activists become more emboldened and so sometimes the quickest route is to just settle for a number of seats,” he added.
And as all eyes are fixed on the season ahead, the universal proxy card is also expected to continue to play a key role on settlement dynamics and the pace of such agreements as each director faces heightened scrutiny. "A lot of companies have taken it upon themselves to engage with shareholders early on in the process and come to constructive resolutions with early-stage settlements, Ryan Nebel, vice chair of Olshan’s shareholder activism practice, told the opening panel of DMI's recent Stewardship Series in New York.
