Proxy season is never dull. On the heels of the high-profile Disney proxy battle, two other boards are in the midst of shakeups. First, Macy’s will gain two new directors backed by activist shareholder Arkhouse Management, who was rebuffed earlier this year in its attempt to acquire the struggling retailer. Arkhouse launched a campaign for nine seats on the board, but gaining two may help bolster its takeover bid, along with raising their offer price. In another big shift, four directors at Paramount are expected to leave the company this week amidst talks of a merger with Shari Redstone’s Skydance Media. Paramount has moved into exclusive talks with Skydance after talking with a series of suitors. Redstone and the Paramount board’s governance committee have reported that they want a smaller board for more efficiency during the talks, but at least one departing board member has expressed concern over the merger.
In other news, a deep dive into Iger’s defense against Trian; Norfolk Southern agrees to a settlement; nine ways to enhance board performance; and the new normal of contested M&A.
In the Spotlight
Macy’s Adds Two Directors Backed by Investor to Its Board
New members will help evaluate investor group’s proposal to acquire the retailer
“Macy’s averted a fight for control of its board but added new directors who will help decide whether to accept a takeover bid it had previously resisted. Macy’s appointed two new independent directors, a move that ended a proxy fight with Arkhouse Management that was seeking to oust most of the 15-person board and to buy the company. The directors had previously been nominated by Arkhouse, which had launched a campaign for nine board seats earlier this year after the department-store chain rejected its takeover offer. Arkhouse along with its partner Brigade Capital Management later raised their bid to $24 a share, or $6.6 billion.” THE WALL STREET JOURNAL
Macy’s and Arkhouse Carry On With Deal Talks
Arkhouse and Brigade up their offer; Macy’s faces pressure with financial woes
“Arkhouse, which has a 4.4% stake in Macy's, then nominated nine director candidates to the company's board in February, triggering a proxy battle. Arkhouse said on Wednesday it withdrew the rest of its board nominees after the company appointed Richard Clark and Richard Markee as independent directors…Clark and Markee will join the board's finance committee, which in addition to its existing responsibilities, will oversee the evaluation of the proposal from Arkhouse and Brigade, Macy's said…Since the first bid in December, Macy's has cut 2,350 jobs and in late February announced a turnaround plan where it would shutter around 150 stores through 2026.” REUTERS
Four Paramount Directors to Step Down as Company Discusses Skydance Merger
The proposed deal has faced criticism from investors
“Dawn Ostroff, a former Spotify executive, Nicole Seligman, an attorney and former president of Sony Entertainment, Frederick Terrell, a veteran investment banking executive, and Rob Klieger, Redstone’s longtime attorney, are expected to step down from the board in coming weeks, according to people familiar with the situation. The directors’ expected departures come at a sensitive time for Paramount Global, as the company is in exclusive talks to merge with Skydance. Seligman, Ostroff and Terrell are on a special committee of independent board directors that is tasked with pursuing the best possible deal for the company, whether that is with Skydance or another suitor. Eight of the company’s 11 directors are on that committee.” THE WALL STREET JOURNAL
Looming Question for Paramount’s Board: How to Navigate Shari Redstone
Is the deal good for all shareholders, or just Redstone?
“The challenge lies in the company’s complicated ownership structure. Ms. Redstone’s stake in Paramount is owned by National Amusements, a holding company that she controls. She has endorsed a deal to sell National Amusements to Skydance, a media company controlled by the tech scion and Hollywood executive David Ellison. Because of the structure of the deal, the sale of National Amusements hinges on a related agreement’s being reached for Skydance to merge with Paramount.” THE NEW YORK TIMES
From Boardspan this Week:
Preparing the Board for Activist Investors
A proactive defense affords the best chance of success
"Corporate boards tend to change themselves during times of crisis—but otherwise accept the status quo. What if boards instead built regular, structured ‘refreshing’ of their membership, their processes, and their future needs into regular operations? What if boards went even further, not asking themselves ‘Do we need to change?’ but rather ‘What will we change?’ ‘Refreshing your board’ is a new phrase in the lexicon of corporate governance. Yet the phrase is already widely recognized among directors. For most, it evokes heightened expectations of a board’s competency and preparedness to govern.” K2 INTELLIGENCE via BOARDSPAN LIBRARY |
Across the Board
How Bob Iger Vanquished Nelson Peltz
A string of initiatives helped inoculate Disney against the Trian push
“The CEO announced a wave of cost-cutting that took some edge off Peltz’s complaint that Disney doesn’t have Netflix-like profit margins. Disney launched new ventures in sports streaming and explored selling off some of its TV networks, making it tough for Peltz to convince investors that the company wasn’t considering all its options. ‘Iger and the board took an appropriately sober assessment of the company’s failings, and launched a series of initiatives that seemed to address the things that all investors were concerned about,’ said Colin Ruegsegger, a senior analyst with the proxy adviser Glass Lewis, which advised investors to vote for Disney’s slate. ‘It was evident that they were picking up steam.’” THE WALL STREET JOURNAL
Iger: Disney’s First Priority is Succession
Post-proxy battle, the company is “treating it with a sense of urgency”
“Succession “is the board’s No. 1 priority,” Iger said, saying the board’s search committee to find a CEO successor met seven times in 2023 and plans to meet even more frequently this year. “They’re treating it with a sense of urgency because it is so important,” Iger said. The board is ‘taking it very, very seriously’ because ‘I’m not going to be here forever.’ Iger declined to provide a timeline for the selection of a new CEO; his contract extension with Disney runs through the end of 2026…Iger said one silver lining of the proxy fight is that it gave the board and some members of Disney’s management team the opportunity to meet with and listen to shareholders more actively. ‘If anything that came of this that’s positive,’ he said, it was the ability to increase ‘engagement with shareholders, and that’s a very good thing.’” VARIETY
Norfolk Southern Settles Derailment Suit for $600 million
The railroad will pay residents and businesses in and around East Palestine
“The settlement, which requires approval by Judge Benita Y. Pearson of U.S. District Court for the Northern District of Ohio, includes payments to residents and businesses within 20 miles of the derailment. It also resolves personal injury claims within a 10-mile radius of the derailment. ‘Individuals and businesses will be able to use compensation from the settlement in any manner they see fit to address potential adverse impacts from the derailment,’ Norfolk Southern said in a statement. ‘This could include health care needs and medical monitoring, property restoration and diminution, and compensation for any net business loss.’” THE NEW YORK TIMES
A Call to Action for Boards
Nine ways to enhance the performance of your directors
“With respect to talent acquisition and retention, there is a need for focused strategic conversations regarding the shortage of talent and skilled labor as well as leveraging corporate culture as a competitive advantage from a recruitment, reskilling, retention and innovation perspective. The board should also position itself to challenge conventional thinking and assist management in transforming customer experiences and disrupting long-established value chains. In today’s technology-driven markets, disruption occurs in many ways — new business models, rapid product innovation, changing customer value propositions and disintermediation of distribution channels. Companies can either lead the way or be swept away.” DIRECTORS & BOARDS
The DOJ is Scrutinizing Rival AI Companies that Share Board Members
The government wants to take action while the industry is still developing
“US antitrust law bars so-called interlocking directorates, in which individuals or entities sit on the board of directors for two companies that directly compete with one another. The Biden administration has stepped up enforcement against these interlocks, forcing directors to step down from the boards of companies such as Warner Bros. Discovery Inc. and Nextdoor Holdings Inc. The AI industry has spurred particular concern among antitrust enforcers because many of the most promising startups depend heavily on the old guard of tech companies for their financing and infrastructure needs…Over the past several months, Microsoft Corp., Amazon.com Inc. and Alphabet Inc.’s Google have spent billions of dollars investing in AI startups — a series of transactions that cemented alliances between the world’s cloud-computing giants and the leading developers of artificial intelligence software.” BLOOMBERG
Not at Any Price – Contested M&A, The New Normal
Post-Covid dislocation across capital markets produced a divergence in investor views
“Friendly, board-supported M&A transactions, are routinely being challenged by shareholders. While this is not a new phenomenon, the frequency and organized public nature of shareholder opposition to announced transactions has caught many public companies by surprise. In the past, institutional shareholders unhappy with a deal might have just sold their shares or privately communicated their displeasure with a transaction, they have become increasingly comfortable in publicly voicing their opposition – with some initiating full-blown proxy contests to defeat a transaction. Another critical difference is investor opposition does not hinge on an incremental improvement in economics, a practice we call ‘bumpitrage’, but rather outright opposition to the transaction proceeding.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Boeing Board at a Crucial Crossroad
Directors face a long road to rebuilding trust and credibility
“Since Calhoun took over as CEO, Boeing stock lost about 43 percent of its value before seeing an uptick after the announced changes in management and the board. While some shareholders appear to welcome Boeing’s announced changes, the company will have to do more to make sure the board is trusted to lead the company into the future. Here are some issues the Boeing board will need to address in a significant way to smooth the company’s recovery from this recent stretch of crises and poor performance…While selecting a new board chair is a good first step, Boeing’s poor stock performance and inability to correct quality issues over a period of years has left the board vulnerable to critics who may argue that the current board is not up to the task. The board could identify potential new candidates who have experience upgrading manufacturing operations, have a background in safety and compliance or have been instrumental in turning around large corporations. While it will be difficult deciding which current board members might step down, the conversation should be had because Boeing shareholders will likely hold the board accountable for everything that happens now. The Financial Times recently reported that The International Association of Machinists District 751 is lobbying for a seat on Boeing’s board. If Boeing’s largest labor union is pushing for a board seat, can its largest shareholders be far behind?” CORPORATE BOARD MEMBER
The New Framework Provided By Moelis
Delaware courts have invalidated direct board-level constraints
“Prior to Moelis & Company, a Delaware corporation (the Company), going public in an initial public offering, the Company’s founder, CEO and chairman of the board (the Founder), along with certain affiliates, entered into a stockholder agreement (Stockholder Agreement) with the Company, which was fully disclosed to the Company’s investors. The Stockholder Agreement granted the Founder (directly and indirectly) expansive rights pertaining to the management and governance of the Company, which the Court described as the Pre-Approval Requirements, Board Composition Provisions and Committee Composition Provision.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Poll: Companies Devoting More Resources to Proxy Prep
With activism and Universal Proxy, more than half of companies have increased focus
“Governance Intelligence’s new poll suggests that, on balance, the greater attention paid to companies around proxy season is having an impact on the amount of time, money and personnel they devote to getting ready…A combined 46 percent of respondents taking part in the poll say the overall level of resources their in-house legal/governance team spends preparing for the proxy season has seen a slight or large increase over the past two years. That compares with just 5 percent who have seen a slight decrease in resources and none who have seen a large decrease over that period.” GOVERNANCE INTELLIGENCE
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