Making Peace With Activist Shareholders: Confessions, and advice, from a director who was once an activist.

Author:Lawrence, Jim

Nelson Peltz. Third Point. Cevian Capital.

If you haven't heard of any of these, it may mean that you do not own shares of Proctor & Gamble, Nestle or Ericsson, respectively. Because those three names--a billionaire and two hedge funds--took on those corporations in the demolition derby that is modern shareholder activism.

Once dismissed as mere disgruntled loudmouths, shareholder activists have long been portrayed as modern-day pirates, forcing loyal board members and management to walk the plank while they plunder vulnerable companies. They were rogues taking treasures that didn't belong to them. But today's activist investors want something different--something that may actually benefit companies.

I've seen this firsthand with one very public event involving ConAgra Foods Inc.

In 2015, I teamed up with Jana Partners, which specializes in event-driven investing. They approached me about an opportunity that captured my attention. Two years prior, ConAgra had completed its acquisition of Ralcorp Holdings Inc., a leading supplier of private-label packaged food in North America.

Over the 19 months after the deal closed, ConAgra shares slipped 0.3%, while every other food-products company in the S&P 500 advanced at least 10%, according to data compiled by Bloomberg. The Ralcorp purchase was clearly a misstep. Jana wanted to do something about it.

The investment firm and I discussed its thesis about what ConAgra had done wrong, what the board should do to redirect the company and the potential value of stock if they acted on the recommended strategy. If a proxy fight ensued, Jana asked if I would put myself up as a board member, along with two other candidates, including Jana managing partner Barry Rosenstein. I gave the proposition considerable thought, knowing that I might become persona non grata within conventional business circles. Ultimately, I found this new approach compelling because of the opportunity to create value for all shareholders who stayed with us--myself included. I agreed to run.

Our first step was to join forces and purchase enough outstanding shares to qualify for a 13D (a form required by the SEC when a person or group acquires beneficial ownership of more than 5% of a voting class of a company's equity securities registered under Section 12 of the Securities Exchange Act of 1934). By the time we announced our status, the group owned 7% of the corporation's shares, providing enough leverage to get a seat at the table.


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