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4/26/2024

Smithson Chair Receives Strong ‘No’ Vote After Continuation Ballot Row

Citywire (04/26/24) Colvin, Jamie

A number of shareholders have voted against the re-election of Smithson (SSON) chair Diana Dyer Bartlett and other directors, showing their displeasure at the investment trust’s attempt not to have a continuation vote. Almost 20% voted against Bartlett’s election at the annual general meeting on Thursday, where a significant minority also favored the winding-down of the £2.1 billion listed fund. Bartlett, who also sits on the boards of Mid Wynd International (MWY) and Schroders British Opportunities (SBO), incurred investors’ displeasure in February by announcing that a continuation vote would not be held at the AGM. This was controversial because under the trust’s policies, the board was obliged to consider having a continuation vote if its shares traded at an average one-year discount of more than 10%. Smithson narrowly exceeded this level last year but in the annual report Dyer Bartlett said a vote was unnecessary as the discount was narrower than its rivals. However, in response to criticism, including from Capital Gearing (CGT) fund manager Peter Spiller, Bartlett changed her mind a week later and the vote was held. The 19% vote against the chair is an improvement on last year, when over 24% of the shares were voted against Bartlett’s re-election in protest at the board’s diversity policy. The company said this reflected the view of one large shareholder. At the Royal Society of Medicine in London yesterday, the continuation vote easily passed in the company’s favor but with holders of 9.6% of the shares showing their dissent by voting against the continuation of a trust that has struggled in the growth sell-off of the past two years. Lord St John of Bletso, who chairs the trust’s audit committee, also saw opposition to his re-election from over 10% of shareholders, the largest of which are wealth managers Brewin Dolphin and Rathbones as well as discount hunter and activist City of London Investment Management. At the meeting, Spiller said he was pleased with the "dramatic improvement in corporate governance" over the last six weeks, with the board increasing the number of share buybacks, which has seen the discount come in to 10%. He noted that the shares were still well under par, meaning those investors that bought shares at a 2% premium two years ago now face a 12% loss relative to the performance of the assets. "This seems to me wholly unacceptable," he said. Dyer Bartlett said the board would continue buybacks for the foreseeable future. She said that at 10%, Smithson’s discount remained narrower than the investment company sector average of 15%.

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4/26/2024

Elliott Builds $1 Billion Anglo American Stake

Bloomberg (04/26/24) Tse, Crystal; Nair, Dinesh; Gopinath, Swetha

Elliott Investment Management has reportedly built an approximately $1 billion stake in Anglo American Plc (NGLOY), adding to the pressure on the UK-listed miner after it rejected a takeover approach from Australia’s BHP Group Ltd (BHP). The hedge fund amassed the holding over recent months, people familiar with the matter said. The size of the stake puts Elliott among Anglo American’s 10 biggest shareholders, data compiled by Bloomberg show. Anglo American shares jumped as much as 4.4% in London after news of the stake. Elliott’s presence in the stock emerges with Anglo American the subject of takeover interest from BHP. The Australian miner has proposed an acquisition that values its smaller rival at £31.1 billion ($38.9 billion) and would create the world’s top copper producer. Anglo American said the proposal significantly undervalues the company. Anglo American has long been viewed as a potential target among the largest miners, particularly because it owns attractive South American copper operations at a time when most of the industry is eager to add reserves and production. But suitors have been put off by its complicated structure and mix of other commodities, as well as its deep exposure to South Africa. In February, Anglo American reported a steep drop in profit and lowered its dividend on the back of falling demand for diamonds and platinum group metals — commodities that are unique to its portfolio. BHP has proposed an all-share deal in which Anglo would first spin off controlling stakes in South African platinum and iron ore companies to its shareholders. Elliott took a sizable position in BHP in 2017 and pushed it to spin off certain oil assets. In 2021, the miner struck deals that extended its withdrawal from fossil fuels, including a sale of oil and gas operations to Woodside Petroleum Ltd (WDS). Elliott has been involved with other metals companies, and is also setting up a new venture, Hyperion, to invest in mining assets.

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4/26/2024

Bayer CEO Wins First AGM Shareholder Vote

Reuters (04/26/24) Weiss, Patricia; Burger, Ludwig

Bayer (BAYRY) CEO Bill Anderson on April 26 won a vote of confidence at his first annual general meeting (AGM) at the head of the embattled healthcare and agriculture group, defying a challenge from Germany's Deka Investment mutual fund managing house. The group said investors with 91.69% of the equity capital represented at the AGM voted for Anderson and his top management team. Deka Investment said previously on April 26 it would not join other big investors in ratifying 2023's conduct and actions of the group's executive board, arguing Anderson should concentrate more on share price performance. The vote is largely symbolic because it has no bearing on management's liability or tenure. However, it is treated as an important gauge of investor sentiment. Two other bigger German mutual fund management houses, DWS (DWSG) and Union Investment, had said they would vote for the management board while shareholder advisory firms Glass Lewis and Institutional Shareholder Services had also offered their support. At the AGM, Anderson stood by his decision in March to suspend for up to three years any preparations to break apart the company. Anderson, who became CEO in June 2023, has had a tumultuous beginning with ongoing U.S. litigation about an alleged cancer-causing effect of weedkiller glyphosate and a significant setback in drug development late in 2023. The shares have dropped roughly 47% since he took over. "We don't regard Mr Anderson's start as successful. We would have wished for more of a focus on aspects that are relevant for the share price," Deka's head of sustainability and corporate governance Ingo Speich noted in a speech. Anderson said he would seek to increase drug development, while also tackling litigation, debt and excessive corporate bureaucracy. "The soul of this company is alive and well," he said, adding that he would work hard to address shareholders' frustration over the dropping share price. Harris Associates, another significant Bayer shareholder, has told Reuters it strongly backs Anderson, including his decision to suspend work on breaking up the group.

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4/26/2024

Climate Groups Picket Swiss National Bank's Shareholder Meeting Over Its Investments

Reuters (04/26/24) Revill, John

Climate campaigners picketed the Swiss National Bank's shareholders meeting on April 26 to protest the central bank's investments in companies they say harm the environment and engage in fracking. The demonstration follows a decision in April by Europe's leading human rights court that Bern was not doing enough to protect its citizens against increasing temperatures. There was also a protest at the UBS (UBS) AGM on April 24. Switzerland notched its two hottest years ever in 2022 and 2023, and snow levels in the Alps are declining. Approximately 50 activists attended the meeting in Bern to demand the central bank sell its shareholdings in fossil fuel and fracking companies or use them to alter the companies' behavior. "We want a climate and environmentally friendly monetary and investment policy from the SNB," said Asti Roesle, campaigns director at the Swiss Climate Alliance. "The SNB can play a strong role because of the size of its investments." The SNB owns stakes in companies such as oil majors Chevron (CVX), Shell (SHEL), and Exxon Mobil (XOM) as part of its 700 billion Swiss francs of foreign currency investments. Its investments were tied to 12 million metric tons of carbon emissions in 2023, according to its sustainability report. The central bank has previously ruled out using its shareholdings to influence environmental policy. "The SNB says dealing with climate change should be a matter for political institutions, but this is an emergency," noted Roesle.

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4/26/2024

Railroad CEO Isn't Ruthless Enough for Investors After Toxic Crash

Bloomberg (04/26/24) Sutherland, Brooke; Porter, Kiel

Norfolk Southern Corp.’s (NSC) chief executive officer was criticized by politicians as the epitome of everything wrong with the profit-obsessed railroad industry when a derailment caused a toxic disaster in East Palestine, Ohio, last year. Now, Ancora Holdings Group is waging an increasingly personal battle to fire the CEO — but not because it wants the railroad to spend more on safety initiatives. Instead, the investor is tagging him as a soft-touch marketing guy who’s overly deferential to workers and customers and unwilling to implement the operational changes necessary to compete in the notoriously cutthroat industry. Alan Shaw is a lifer at Norfolk, starting out in the finance department in 1994. But he came into the CEO job in 2022 — less than a year before the Ohio disaster — with a message of change. For more than a decade, the railroad industry has been governed by the gospel of the late executive Hunter Harrison: an efficiency strategy known as precision scheduled railroading that’s resulted in shrunken workforces and longer, more packed trains. Shaw argued railroads had become so focused on costs they had forgotten how to grow and were losing business to truckers — not to mention upsetting existing customers and employees. Workers love his message, as do regulators and shippers frustrated with years of poor rail service. But Ancora is betting that investors don’t — Norfolk’s shares are down about 7% in the past two years, including a sharp sell-off after the derailment, badly trailing the almost 10% gain for the benchmark S&P Road & Rail index. The fund wants to replace Shaw with Jim Barber, a former United Parcel Service Inc. executive, and also install Jamie Boychuk, a protege of Harrison’s who helped oversee CSX Corp.’s adoption of PSR tactics. Both Barber and Boychuk are known as hard-nosed operators with little interest in warm and fuzzy ideas like company culture. Ancora, which owns less than 0.5% of Norfolk shares, is also seeking to replace most of the board. The proxy vote is May 9. At least some shareholders endorse Ancora’s proposed overhaul: EdgePoint Investment Group Inc., which owns Norfolk shares worth about $1 billion, and Neuberger Berman Group, which owns a much smaller stake of less than 0.1%, have both backed the activist slate. The Brotherhood of Maintenance of Way Employes, a division of the Teamsters union, on Thursday backed Ancora's push for change, criticizing current management for "non-committal hedging on reasonable, needed changes" that would prevent future rail accidents. The group represents about 19% of Norfolk's unionized workforce. The railroad's other major unions have backed Norfolk's existing strategy, and with only a few weeks to go until the shareholder vote, Norfolk is holding firm on its support for Shaw in a sign the company thinks it can resist the activist engagement.

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4/26/2024

Phillips 66 Misses First-quarter Profit Estimates on Weaker Margins

Reuters (04/26/24) Bose, Sourasis

Phillips 66 (PSX) missed quarterly profit estimates because of a drop in refining margins led by underperformance at its Gulf Coast operations. Refiner margins have scaled back from the peaks reached after Russia's invasion of Ukraine in 2022, amid an increase in global refining capacity that has resulted in a decline in fuel prices. The company said its realized margins fell approximately 47% to $10.91 a barrel in the first quarter from a year ago, led by about a 50% drop in Gulf Coast margins. "The market was likely expecting a noisy West Coast refining result given Rodeo startup, though margins were also weaker than forecast in other regions," TD Cowen analysts commented in a note. Phillips' market capture, a measure of refining profit compared to industry benchmarks, declined to 69% in the quarter from 93%, even as its crude capacity utilization was above last year at 92%. Investor Elliott, which disclosed a $1 billion stake in Phillips in 2023, has been urging the company to address underperformance in refining and hasten cost reductions. Phillips CEO Mark Lashier stated, "our results were affected by maintenance that limited our ability to make higher-value products." However, competitor Valero (VLO) topped profit forecasts on April 25 despite routine maintenance work at its refineries. Lashier said the heavy maintenance the company saw in the first quarter is largely finished. The company said it has launched a sales process of its retail marketing business in Germany and Austria as part of its plan to divest non-core assets of approximately $3 billion.

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4/25/2024

Investor Group Says Japanese Firms' Strategic Shareholdings 'Should be in Principle Zero'

Reuters (04/25/24) Bridge, Anton

Japanese firms should reduce their "strategic shareholdings" to improve resource allocation, which is key to Japan's economic revival, the Asian Corporate Governance Association (ACGA) said. Strategic shareholdings, which include allegiant and cross-shareholdings, serve to form business relationships between group companies and their suppliers and customers, but reduce capital efficiency, allow for persistently poor financial performance and harm competitive behavior, the ACGA said in an open letter published on Friday. The association, whose membership comprises institutional investors globally, said it was issuing the letter to "underscore the need to accelerate the further reduction of these shareholdings, which we believe in principle should be zero for most companies." Signatories include representatives of asset management firm Neuberger Berman, Hong Kong-based investor Oasis Management, and Japan's Pension Fund Association. The Tokyo Stock Exchange and Japanese government have both sought to encourage firms to improve their corporate governance and capital allocation over the past decade and Japanese firms have begun to unwind their strategic shareholdings. On average these shareholdings made up 8.4% of Topix 500 companies' net assets in 2023, according to securities reports data cited in the letter, down from 13.5% in 2015. The ACGA recommends a general policy of no strategic shareholdings. To expedite the process in Japan, it has called for more extensive disclosure on strategic shareholdings. For companies with "significant" strategic shareholdings of, for instance, more than 5% of net assets, the ACGA proposed the formation of a special committee made up of independent directors and auditors to oversee the divestment strategy and execution. The ACGA previously released an open letter on gender diversity on Japanese companies' boards, calling for women to make up 30% of boardroom positions at all firms listed on the TSE Prime market by 2030.

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4/25/2024

Crown Castle Highlights Actions Its Board Has Implemented to Successfully Strengthen Foundation and Position Company for Long-Term Value Creation

GlobeNewswire (04/25/24)

In a letter to shareholders, Crown Castle (CCI) says Ted Miller of Boots Capital Management continues to show that his proxy contest is self-serving. Crown Castle says Miller is spreading inaccurate and misleading information in the market, noting that his proposal to end the proxy fight was conditioned on the company appointing him as either chair or co-chair of the board. Such an appointment is inappropriate given Miller's lack of relevant experience since leaving Crown Castle 22 years ago and is a disproportionate level of control and influence relative to Boots Capital's ownership position of 0.18% of the company's stock, the letter says. Moreover, Crown Castle says he didn't disclose that his proposal was also conditioned on the company terminating its binding cooperation agreement with Elliott Investment Management, which it has no ability to unilaterally terminate, thereby making his proposal completely illusory. The letter says Miller has positioned himself as an advocate of good governance and beneficial change but his litigation strategy reveals that his true motives are to gain control of the company and, along with his son-in-law and two friends, execute a self-serving agenda. Miller has impeded reviews of Crown Castle's businesses, attempted to delay its CEO search, and is seeking to reduce the size of the company's director nominee slate, it says. Crown Castle highlights its efforts to improve its performance and shareholder value, says Miller is not aligned with the interest of company shareholders, and urges them to vote for only its director nominees at its May 22 shareholder meeting.

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4/25/2024

Engine Capital Focuses on Dye & Durham’s ‘Underperformance and Strategic Missteps’ in Letter to Shareholders

Toronto Globe & Mail (04/25/24) Silcoff, Sean

Engine Capital LP has boosted its engagement of Dye & Durham (DYNDF), explicating its case for the first time publicly April 25 after saying its behind-the-scenes efforts to “work constructively with the board fizzled out.” Engine, which owns a 6.6% stake in the Toronto company’s stock, issued a letter to other shareholders April 25 signed by managing partner Arnaud Ajdler in which he said he was “compelled to publicly raise our concerns about Dye & Durham’s underperformance and strategic missteps.” Those include its underperformance relative to the TSX Composite and Nasdaq Composite Index over the past one and three years and since its initial public offering almost four years ago. Ajdler stated that the company is a poor allocator of capital, noting it had paid too much for acquisitions, bought back shares and months later issued stock at a lower price, mismanaged the refinancing of $345 million in convertible debt and made “unnecessary” expenditures totaling $134 million related to acquisition, restructuring and other costs over the last three years. That cumulative cost “is an exorbitant number that reflects the frenetic pace of capital market activity under the current board.” Further, the company had set “the wrong long-term operational target” by targeting $1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA), commenting that the measure “incentivizes acquisitions — even if they don’t create shareholder value. There should be no pressure on management or the board to reach an arbitrary target.” Ajdler stated that the board needs to change its incentive structure to optimize return on invested capital, focus on growing revenues from existing businesses “and consider acquisitions in a measured and disciplined way.” The company has called a special shareholder meeting for Aug. 20 at the behest of Engine Capital, which earlier urged the removal of three directors — Brian Derksen, Colleen Moorehead and Leslie O’Donoghue — and proposed three of its own nominees to replace them. After receiving a letter from the investor earlier this year, D&D announced Derksen, its chairman, would not stand for re-election and that Moorehead would take over his role in the interim. The company has since received notice from another investor, Ireland-based Blacksheep Fund Management, which said it may nominate its chief investment officer to join D&D’s seven-person board at the meeting. Ajdler said he still hopes to reach a “constructive resolution” but cautioned he was concerned the board would “resort to scorched-earth tactics” including frivolous legal actions against Engine and other shareholders. Both Engine and Blacksheep have previously engaged Canadian companies. Engine has been urging Calgary’s Parkland Corp. (PKIUF) to take measures to boost shareholder value, while Blacksheep engaged Toronto-based telecommunications company Tucows Inc. (TCX) for similar reasons.

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