Most activist shareholders have refrained from challenging the boards of U.S. companies during this season of annual shareholder meetings, as businesses reel from the economic fallout of the coronavirus outbreak.
Not Starboard Value.
The New York-based hedge fund, which Jeffrey Smith spun out of investment firm Ramius in 2011, is pursuing proxy contests against five U.S. companies, even as rivals remain largely silent, according to a review of regulatory filings.
Starboard, which built its reputation as a powerful player by winning more board seats than any other activist, is betting companies will be willing to settle during the crisis, so they can concentrate on their business and the safety of their employees.
Last week Starboard nominated six candidates at data management software provider Commvault Systems, adding another fight to a lineup that already includes e-commerce company eBay, construction and building materials supplier GCP Applied Technologies, health-care services company Mednax, and medical devices manufacturer Merit Medical. Starboard is looking for roughly two dozen board seats in total, according to the filings.
All these companies saw their shares slide at the onset of the pandemic, and are bracing for a hit in their business as a result of the economic downturn.
"What Starboard is doing stands in stark contrast with other activist investors who are holding back and have reached settlements," said Jill Fisch, a University of Pennsylvania Law School professor and corporate governance expert.
"We have never seen a shareholder nominate directors at so many companies at the same time. Starboard is blazing a path for more aggression."
Starboard, eBay, Commvault, GCP, Merit, and Mednax declined to comment.
Last year Starboard won 20 board seats at seven companies, and since 2013 it has won 118 seats, according to data from Activist Insight. It secured the vast majority of them through settlements with companies keen to resolve the board challenges prior to a shareholder vote. It is a track record the roughly $5 billion hedge fund boasts about when it courts investors, according to some of them who discussed the pitch on condition of anonymity.
The firm made history in 2014 when shareholders voted to throw out all 12 directors at Darden Restaurants and install Starboard's slate, a rare feat for a hedge fund at a major U.S. company.
"Their thesis is they don't mind people being afraid of them," said Mark Gerstein, a partner at law firm Latham & Watkins who advises companies on their defense against activist hedge funds such as Starboard.
Winners and losers
The performance of Starboard's targets is mixed. Total shareholder return (TSR) at Darden surged 227% between Starboard joining the Olive Garden restaurant owner's board in 2014 and February 2020, when the coronavirus crisis started weighing on the U.S. stock market. Semiconductor maker Marvell Technology's TSR jumped 166% in the period between Starboard joining the board in 2016 and the end of February 2020.
But there were losers, too. In two situations where Starboard appointees comprised at least half of a company's board, online data tracking service Comscore and drugmaker Depomed, which renamed itself Assertio Therapeutics in 2018, TSR tumbled 87% and 94%, respectively, in the period between Starboard directors joining the boards and the end of February.
Starboard declined to disclose or comment on the returns of the hedge fund.
It is not yet clear how the crisis will affect the corporate world's defenses against Starboard. Board members are aware of how high the stakes are this year and are tallying the potential cost of losing experienced directors, bankers, lawyers and investors said.
GCP has called the nomination a "self-serving proxy fight that is out of touch with the realities of the current operating environment and global crisis."
"Activist shareholders who overreach for the sake of a win and who aggressively and reflexively push to remove key board members and leaders... will be remembered as failing to meet the moment," said Sabastian Niles, a partner at law firm Wachtell, Lipton, Rosen & Katz who defends companies against Starboard and other hedge funds.