When most people think shareholder activism, they think big
names and big hedge funds – Carl Icahn, Bill Ackman, Jana
Partners – who have the wherewithal to obtain a sizeable
stake in the target company. However, as explored by Ronald Barusch in the Wall Street
Journal, a new form of activism, spearheaded by a former Obama
aide, Harry J. Wilson, has shown that you don't need to carry a
big stick (or have a major stake in the target company) to have
clout as an activist.
In a February 9, 2015 notice to General Motors,
Wilson put the company on notice that for their 2015 annual general
meeting he (1) intends to nominate himself to stand for election
for a seat on the board; and (2) requests that a proposal be put to
shareholders that GM should carry out not less than $8 billion in
share repurchases. These are the sorts of requests that are fairly
typical in shareholder activism by the major funds. What is
atypical, however, is that Wilson is the beneficial owner of a mere
30,000 or so shares of GM.
Traditionally, in order to get clout as an activist, you have to
buy it, and in order to realize profits, you have to earn them
through your shareholdings. Instead, Wilson obtained the backing of
four funds to support his plan – Taconic, Appaloosa, HG Vora,
and Hayman – who collectively own approximately 31.2 million
shares, or 1.9%, of the company's stock. With respect to
Wilson's potential profits, the notice discloses that Wilson
has reached agreements with these funds providing for the
reimbursement of funds connected with his activism and for profit
sharing on any gains realized from the funds' shares, if his
plan is successful (as defined by the terms of those
On February 10, GM issued a
statement stating that it would evaluate the proposal, and
underlining its commitment to act in the best interest of all
Although certainly an inventive form of activism, commentators such as Barusch have raised
concerns about whether Wilson's incentives are in line with the
long-term best interest of GM. Specifically, the terms of his
profit sharing agreements, some of which may require adoption of a
version of a buyback plan or, at least, that the buyback proposal
be put to shareholders and voted upon, pose a risk of stymying
reasonable compromises that may be in the best interests of
shareholders. Similarly, Wilson's limited capital exposure and
the fact that the incentive fees are generally only realizable over
a three year period might arguably motivate Wilson to prefer
Any misalignment of interests is already a common concern for
targets of activist investors. These concerns are likely to be
magnified where activism occurs without the safeguard of a
substantial investment by the activist. However, such worries may
be offset by the interests of the underlying funds. Wilson's
bold move may be the start of a new trend in shareholder activism
that companies should be prepared to watch for and defend against
in the future.
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