SPECIAL REPORT ON SHAREHOLDER ACTIVISM

AFTER THE STORM

Damien Park, Managing Partner

Hedge Fund Solutions LLC
dpark@hedgerelations.com ▪ 215-325-0514
 Discussion Topics

I. Quick Review: About HFS

II. The Shareholder Activism Report/Portal

a. Why Activist Investing Works
b. Activist Funds Today
c. Economic, Political & Regulatory Environment
d. What to Expect: 2010 & Beyond

III. Questions & Answers

 About Hedge Fund Solutions, LLC

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 Catalyst Investment Research™

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 The Shareholder Activism Report
Featuring 400+ Pages on…

• Recommendations from TCB’s Expert Committee on Shareholder Activism

• Analysis of the economic, political and regulatory environment in the context of
shareholder activism
• In-depth review of how to Understand Shareholders,
Assess Value Gaps & Exposures, and
Manage Engagement Strategies
• Benchmark studies on board member and executive
compensation
• Comprehensive directory of over 400 activists
• Top 50 activist investor profiles
• Detailed proxy contest case studies from 2009
• Much more…
 Why Activist Investing Works

Does Activism Increase Shareowner Returns?

NYU Study: Stock prices of companies targeted by activist

investors earn 10.2% average returns during the
period surrounding an activist’s ownership
disclosure and an additional 11.4% abnormal
return during the following 12 months.

IRRC Study: Companies in which activists gained board seats

outperformed by 1660 basis points (16.6%) from
the date of the contest through a year after
election date.
 Why Activist Investing Works

What is Excess Return?

ALPHA + RESIDUAL

Activist investing works on both alphaα r

and residual
• Alpha through security selection
• Implementation tries to “create unexpected good news”
to make [r] positive
 Causes market to focus on what activist sees in
company
 Raises possibility of value realization
• Results in market re-rating as possible value realization
becomes investment thesis

Source: “Effectiveness of Hybrid Boards”

www.irrcinstitute.org
 Activist Funds Today

Activist Hedge Funds:

 2009 was a year for activist funds to restructure, rebalance, rebuild and
refocus
 New marketing campaigns to raise capital and create awareness are
underway
 Recent examples of resurgence (Spotlight Advisors, Barington Capital,
Riley Investment Management, new activists)

Hybrid Funds – Private + Public Equity:

 Active value carve-outs from larger PE funds
 Increasing number of private equity funds filing 13Ds
 Improved M&A environment will position PE as white knight once again

Traditionally Passive Funds:

 Increased level of active involvement: Governance, Director &
Management Compensation, CEO Succession, Transactions, etc…
 Economic, Political & Regulatory Landscape

Economic Recovery:
 Despite Dow 10,000+: Strong corporate balance sheets and accessible
credit markets will drive activist efforts to return cash, boost dividend
payouts and examine strategic alternatives

Political/Regulatory Landscape:
 Mid-term elections; Schumer & Dodd Bills; and the perception of
corporate greed and malfeasance will continue to encourage activism
 SEC is continuing to shift the balance of power out of the boardroom and
toward shareholders
Economic, Political & Regulatory Landscape Continued…

New Regulatory Issues for Public Companies

Enhanced Disclosure: Director Qualifications & Diversity, Risk
Oversight, Compensations Consultants,
Election Voting Results

Director Nominations: Shareholder Access to Corporate Proxy

materials, also referred to as “Proxy
Access”

Director Nominations: Rounding out Short Slate Solicitations

Director Elections: Rule 452 “Broker Vote Rule” (combined

with majority voting and e-proxy)

Risk Disclosure: Overseeing Risk

Shareholder Proposals: CEO Succession Planning & Risk

Assessment
 What to Expect: 2010 & Beyond

 Acceleration of (traditionally passive) institutional investor activism

 More disclosure, uncertainty and complexity for public companies

 Return of M&A and balance sheet activism

 Better qualified dissident nominees (former CEOs and industry experts)

 Improved activist campaigns (greater details for improving performance)

 New and reconstituted players

 Emergence of “shareholder dialogue” best practice

 Contact Timothy Concannon to learn
more and to schedule a free webinar
showcasing The Shareholder Activism
Resource Portal.
Timothy.Concannon@conference-board.org
212.339.0207

“Important reading for corporate directors and those who advise them.”

David Katz
Corporate Partner
Wachtell, Lipton, Rosen & Katz

“Given the dramatic changes taking place in the corporate governance

landscape, this is a timely publication worthy of the attention of
directors, officers, and investors.”
James C. Morphy
Managing Partner
Sullivan & Cromwell LLP

Hedge Fund Solutions LLC

“A very comprehensive set of resources, including battle-tested
recommendations that will prove invaluable for both companies and
investors.” Damien J. Park
Arthur Crozier Managing Partner
Co-Chairman
Innisfree M&A Incorporated dpark@hedgerelations.com
215-325-0514
“A timely and comprehensive analysis that should promote rational
discourse and reduce the fear factor.” www.hedgerelations.com
John C. Wilcox
Chairman, Sodali
Former Head of Corporate Governance, TIAA-CREF