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UPDATE: What's Up With Trian and Blackwells?
A few weeks ago we highlighted the goings-on at DIS, after Blackwells Capital jumped into the Trian Partners proxy contest there (below). Last week, things became even nuttier, as Blackwells started its own proxy contest, and DIS announced support from another activist, ValueAct Capital.
We typically refrain from posting on individual activist situations unless they illustrate vividly one or another idea in activism. This one definitely does so, about the dynamics of multiple activists under universal proxy. It's also fascinating for what it says about Blackwells and ValueAct.
Blackwells' Bizarre Idea
Recall Blackwells dragged the Trian proxy contest, in which Trian plans to nominate two candidates, CEO Nelson Peltz and a former CFO at DIS. News accounts also reported Blackwells would nominate directors at WEN, the principal holding of Trian. Instead, this week Blackwells disclosed it would nominate three directors at ... DIS.
Blackwells also proposes DIS immediately add back to the BoD any incumbents that lose to Blackwells nominees. Finally, Blackwells released a letter asking DIS to investigate any relationship between Trian and Ancora, who announced its support for Trian a few weeks ago.
The original Blackwells move struck us as a publicity stunt, rather than a serious activist project. This current move affirms this. Earlier, Blackwells cheered DIS turnaround efforts and the "enviable" BoD. Now, it offers three new directors, and no reason why or how the three improve on those efforts.
While novel, suggesting DIS expand the BoD to re-appoint losing incumbents is just bizarre. Companies would naturally rush to do this anytime an incumbent loses to a challenger. They don't because it subverts completely shareholder intent, having just rejected those very incumbents. Disenfranchised shareholders would have a strong case against DIS in Delaware Chancery Court.
Also, note Blackwells does not propose its nominees resign in favor of incumbents (and maintain the BoD at its current size). Imagine recruiting three qualified nominees for a proxy contest, and requiring them to step down immediately if they prevail over the very directors they seek to defeat. Instead, the winning and losing directors get to serve together! Awkward...
We guess DIS already thought to look into Trian and Ancora ("Thanks! terrific idea!"). Blackwells accuses them of coordinating efforts, and suggests they violated advance notice terms of DIS bylaws and SEC disclosure rules. As for the former, we don't know what Trian included in its original or an updated nomination notice to DIS. We expect in the unlikely event they do coordinate (Trian doesn't really need Ancora), Trian would scrupuloulsy avoid cratering its efforts by hiding it. If Blackwells thinks they failed to file all this with the SEC, then as a DIS shareholder it could report it to the SEC. Notably, its letter to DIS does not mention doing so.
ValueAct's Cheap Support
The ValueAct announcement makes more sense, at least for DIS. They have known each other for some time, and evidently began collaborating in the past few months. ValueAct will vote in favor of DIS incumbents, too.
DIS crowed how ValueAct has abundant experience in media and tech and a record of "collaboration and cooperation", in pointed contrast to what is says about Trian. ValueAct has significant credibility with many DIS investors, and could deflect Trian criticism of the current turnaround efforts.
ValueAct came cheap to DIS. No BoD seat or even BoD observer role here, which it received in many similar situations. In consideration for a very public boost to DIS, ValueAct receives only confidential information that presumably will allow it to advise the DIS BoD. We expect ValueAct won't charge McKinsey-level fees.
We struggle to understand how this helps ValueAct. DIS promises to listen to advice from ValueAct, not follow it. Unlike Blackwells, ValueAct hardly needs the publicity. Perhaps in the clash of egos among leading activist investors, this grants ValueAct a bit of fleeting status relative to Trian.
ValueAct's support did irk Blackwells, though, since DIS shareholders are less inclined to support it, similar to the impact on Trian. Blackwells told Reuters the ValueAct agreement is "a disappointing defensive move ... Bringing all shareholders a real and better choice for directors is ... necessary." Thus, "if anyone is needed it's the Blackwells’ nominees," not the two from Trian.
Universal Proxy Makes It Happen
Blackwells seems to want mostly to disrupt Trian's proxy contest. It can best do so only if their three candidates appear on the same proxy card as Trian's two. Of course, this happens only under universal proxy card.
As to why Blackwells wants this, we can only speculate. With ValueAct, DIS doesn't need them, and Trian must loath them by now. This doesn't fit into any plausible thesis for Blackwells' DIS investment, and makes no sense for fundraising.
And, DIS could not have asked for a better development. They almost certainly have no interest in Blackwells or its nominees - otherwise, it would just appoint one or more of them to the current BoD. Yet, we now have a proxy contest with multiple activists, as Trian and Blackwells presumably solicit and divide the same shareholder votes. We predicted this would happen under universal proxy, although not in this unusual manner.
We see Blackwells gaining only (adverse) publicity from this effort. They can't possibly have a logical "case for change" that will persuade proxy advisors to support them, not after its glowing praise for the current BoD at DIS. They have no chance to win large investors' votes, after ValueAct announced its support.
We expect Blackwells will find itself very alone in future activist efforts. It's one thing for activists to compete at a portfolio company. Then, shareholders can decide whose thesis and BoD candidates they prefer. It's much different to actively thwart the efforts of another activist, much less one with Trian's record, reputation. and resources.
As we've noted many times before, activists almost always need the support of other shareholders. It would surprise us if after this, Blackwells can achieve that in its subsequent projects.
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