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Ok, One More Activist Win Under Universal Proxy

Sure, we said we don't plan to post every time we obtain a voting result for a proxy contest under universal proxy, still this one is also quite interesting.

The most recent BoD election to proceed under the new universal proxy card (UPC) rule, last week, provides the most complete example so far of how it works. As with the previous two voting results (Land and Buildings-AIV and Mangless-ZVRA), activist investor Hestia Capital prevailed decisively at Pitney-Bowes (PBI).

Notably, this election featured a vote over majority control of the BoD. Like the other two, it worked largely as the SEC intended. Specifically, it allowed shareholders to vote for the extent of change they wanted with much more precision than before.

Hestia and PBI

Hestia is a newer activist fund, run by Kurt Wolf, who got his start at Relational Investors. Its only other public activist situation was at GameStop (GME) in 2019, before it became the meme stock poster child. Wolf joined the GME BoD as part of a settlement, and stayed there for two years. So, Hestia and Wolf have a decent idea how to pursue these projects.

Hestia owns 8.4% of PBI, the old postage meter company and now a competitor in the crowded logistics and fulfillment business. It began buying shares in September 2021, and disclosed its position in a Form 13D filing in November 2022.

A somewhat typical yet aggressive contest

Hestia announced its intention to elect a majority of the nine-member BoD in December 2022. The next month, it notified PBI of its intent to nominate seven candidates, a substantial majority of the BoD. In March 2022 it reduced its slate to a narrower five-candidate majority, in response to PBI changes in the BoD. These comprised four independent nominees and Wolf.

PBI much belatedly refreshed the BoD in March 2023. It increased the BoD to eleven members and appointed two new directors. It also announced that three incumbents would not stand for election in 2023. Thus, at the 2023 ASM on May 9, 2023 the BoD would have eight incumbents and one vacancy.

As has become the practice under UPC, Hestia identified the incumbents it sought to replace with its nominees. Among these, it targeted the PBI CEO, who is also a director. It identified one of its nominees as an interim CEO (Rosenzweig), and promoted his qualifications as such.

PBI included one of the Hestia nominees (May) among its own nine nominees, essentially to fill the vacancy it created. Thus, there were four contested seats, since PBI endorsed one of the five Hestia nominees.

Perhaps PBI thought including an activist candidate on its slate along with the BoD refresh might persuade shareholders to support its case or maybe go easy on them. They were badly mistaken.

The activist prevails

Hestia and PBI pursued the usual tactics, with slick websites, news releases, presentations, and social media. PBI defended its BoD refresh and new plans, while Hestia blamed the BoD for years of poor results.

Proxy advisors weighed in, largely in support of Hestia:

  • Egan-Jones recommended all five Hestia candidates
  • Glass Lewis recommended three: the consensus candidate May, the Hestia CEO candidate Rosenzweig, and Wolf
  • ISS recommended four: May, Wolf, and the two other independent recruits, but not Rosenzweig.

PBI counted the votes last week. Three of the four contested Hestia nominees won, all but Rosenzweig, while both Hestia and PBI endorsed May, who of course also won. This outcome followed exactly the ISS recommendation. Among the four contested seats, the vote was fairly decisive. The four winning nominees received 58-66% of the available votes, while the losing ones received 27-40%.

What's different, and what we learned

Two attributes distinguish this contest. First, Hestia pursued a majority of the BoD, even after PBI refreshed the BoD. Investors and proxy advisors have long opposed control contests such as this, except in cases of exceptionally poor corp gov or business results. Hestia fell one seat short of this goal, so evidently PBI was not the exception this time.

Second, Hestia specifically sought to replace the CEO. Other contests might only review the CEO or remove the CEO from the BoD. Hestia attempted to make the very personal case that shareholders should not only elect Rosenzweig, but also appoint him interim CEO. Evidently PBI shareholders want the BoD to handle the decision what to do about him.

For the second time, shareholders adopted the exact ISS voting recommendation (Land & Buildings-AIV was the first). While ISS agreed that PBI needed significant change, it stopped short of endorsing a majority of the BoD or changing the CEO. Proxy advisor recommendations to split votes have now started to have an impact.

Like the two previous proxy contests under UPC, the transition from a binary to a continuous vote mattered. Shareholders expressed how much change they desire at PBI with much more precision than before: a lot, but just short of granting control of the BoD and the CEO decision to a significant shareholder.

Hestia has much to be happy about with this result. And, activists are now 3-0 in proxy contests with a voting outcome under UPC.

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You can find other useful resources at the TAI website, including our research on "Effective Activism", our white paper with the basics on activist investing, and our guides on exempt solicitationconsent solicitation, and special shareholder meetings.
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For further information, or to discuss a specific turnaround situation, please contact:

Michael R. Levin