“You’re the CEO of a company who got the job by lying about having been captain of your high school debate team. Dan Loeb has called three times. What do you do?”
“Word on the Street is that Bill Ackman has tried your protein shakes and he thinks they taste like shit. What’s your next move?”
“Carl Icahn has been standing in your lobby for the last 20 minutes shouting about your board reminding him of the kids he used beat up in Queens and telling the receptionist that if she’s listening to let him talk. What happens next?”
Until recently, many companies responded to activists by simply refusing to meet with them and hoping they would go away. When Daniel S. Loeb of Third Point Management took a stake in Yahoo in 2011, the company was initially dismissive. In an early phone call between Mr. Loeb and Yahoo, the company’s chairman, Roy Bostock, reportedly hung up on him. But a year and a half later, Mr. Loeb had forced out Yahoo’s chief executive and was on the board. After a string of such debacles, and with activism today more established and prolific than ever before, that approach has fallen out of favor.
Mr. Young is one of a few bankers who spends almost all of his time advising companies on how to prepare for and deal with activists. William Anderson of Goldman Sachs has a similar role. Smaller investment banks, like Evercore, are now devoting more resources to activism defense practices as well. To prepare for activists, who often show up with detailed white papers assailing a target’s performance, companies conduct a handful of exercises to give management and boards a better understanding of their perceived vulnerabilities. Small teams that include management, a banker, a lawyer and an outside public relations specialist are often assembled to prepare a response in the event of an attack. The goal, advisers say, is to see the company through the eyes of an activist, especially at a time when activists have gone from being outspoken agitators to rigorously analytical financial engineers. “The level of sophistication of the activists has increased,” Richard Grossman, a partner at Skadden, Arps, Slate, Meagher & Flom. “They’re hiring headhunters, using banks to help them come up with white papers, and the quality of their board candidates is increasing.” … One company invited an activist investor into the boardroom to explain how he might think about undertaking an assault. A multinational company had a banker write a mock letter from an activist, then tested executives on their response. “This proactive preparation, what I call ‘the activist fire drill,’ is new technology, so to speak,” Mr. Young said.
Boardrooms Rethink Tactics to Defang Activist Investors [Dealbook]