The Activist Investor Blog
The Activist Investor Blog
Annals of Investor Relations: What CEOs Really Think of Investors
For a moment it appeared to some investors that relations with portfolio companies started to improve. This ostensible collaboration includes the new projects for engaging shareholders. The Shareholder-Director Exchange in particular features input from significant companies (Home Depot, Merck) and investors (Vanguard, BlackRock).
Don’t get your hopes up, at least based on what companies tell their employees about investors. The correspondence in the Allergan saga reveals much about the true sentiment in the boardroom.
Last week, Allergan declined even to talk to Valeant and Pershing Square (PS) about the latter’s offer to buy the former. The lead director at Allergan replied to PS with a terse letter reiterating support for the CEO.
Allergan’s CEO also sent a letter to employees. He reports meeting with “most of our largest shareholders” to present a “new enhanced growth plan.” The executive team had worked on it for “about nine months”. Evidently after the Valeant-PS bid, they “rapidly finalize(d)” it. Some plan...
The letter also warns employees of “attacks launched on Allergan by Valeant and PS”. The CEO asks employees to “avoid distraction” and “prepare .. that this battle” last for all of 2014. He assures them “the small team of Allergan employees who are dedicated to dealing with Valeant and PS, will be ready.”
Bill Ackman replied with his own letter, and found the tone and content “disturbing” (our emphasis):
Valeant ... presented Allergan (with) a strategic business opportunity that should be explored carefully, not an invasion that requires readiness and a counterattack plan.
The Allergan board should independently lead this process rather than delegating these important governance matters to a team of conflicted employees who are “dedicated to dealing with Valeant and PS”...
No wonder attorneys call these missives “fight letters” as part of a “proxy battle”.
Sure, Allergan faces a determined investor and clever competitor in PS and Valeant, respectively. If PS and Valeant succeed, they will change many things, and people will lose jobs. Yet, Allergan has experienced and presumably independent leadership, who need not and should not view shareholders as adversaries. Astonishingly, after the BoD told PS they would handle the entire situation with “professionalism” they included their genuine views in a public SEC filing.
Executives will gladly talk nicely to (and about) investors in low-stakes situations. When investors confront them with tough strategic decisions, their real views emerge.
We don’t expect entrenched corporate interests to change their minds about aggressive investors. Investors, then, should dispense with any illusions that the recent efforts to “engage” us shareholders represent anything but an elaborate sop to keep us quiet.
Tuesday, May 27, 2014