The number of companies targeted by shareholder activists hit anall-time high in 2018, as more investors launched campaigns,lobbied for and against deals, and increasingly cast their eyes onEurope.

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This spike in activity coincided with the return of billionaireCarl Icahn to the activist scene after a sojourn in Washington as aspecial adviser to President Donald Trump. Icahn pushed for higherprices on several transactions, including Michael Dell's plans toreturn his eponymous tech giant to the public markets and AmtrustFinancial Services' plans to go private. He also broke up FujifilmHoldings Corp.'s takeover of Xerox Corp.

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“Activism against M&A [mergers and acquisitions] reached anall-time high this year,” says Kai Liekefett, partner and chairmanof the shareholder activism practice at law firm Sidley Austin LLP,noting that Icahn led the charge. “He's about to perfect the art ofgetting higher deal prices out of buyers.”

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Activists have fought a total of 240 activist campaigns against218 companies with a market value of more than $500 million so farin 2018, according to data collected by Lazard Ltd. That compareswith 194 campaigns against 169 corporations last year. The totalnumber of funds leading campaigns rose to 133, up from 109 lastyear and 49 five years ago, the data show.

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In all, a record 160 seats on boards were awarded to activistsin 2018, up from 100 a year ago and the previous peak of 145 in2016.

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First-Timers

The increase is due, in part, to more first-time andnontraditional activists agitating for change, says Jim Rossman,head of shareholder advisory at Lazard. More established activistsare also shifting the paradigm by shunning traditional proxyfights. Instead, they're being more vocal earlier, tellingcorporations what changes they think are necessary to avoid a messyand costly public fight.

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Dan Loeb's Third Point, for example, released open letters atNestle SA and told its own investors what it would like UnitedTechnologies Corp. to change. Bill Ackman has also openly discussedhis Pershing Square Capital Management's investments in UnitedTechnologies and Starbucks Corp.

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“It doesn't add to the value of an asset to have the managerdistracted in a proxy fight,” Rossman says. “If they can help thecompany and the activist avoid a proxy fight, they're going toexpress their view. It's an elevation of the game.”

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Activists are also more frequently running so-called 'wolf pack'campaigns, says David Dubner, recently appointed co-head of GoldmanSachs Group Inc.'s activism and shareholder advisory for theAmericas. That's where several firms group together to create abloc that owns a substantial chunk of a company's shares.

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Paulson & Co., the New York-based hedge fund run bybillionaire John Paulson, led a campaign that this month replacedthe majority of the board at Canada's Detour Gold Corp. Paulsonteamed up with at least three other investors who voted in a blocto overcome a recommendation from two shareholder advisory firmsthat fewer of the dissident directors be elected.

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“I expect you'll see more of those types of campaigns as you seethe successful outcomes,” Dubner said.

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Big Fights

By and large, mega-cap companies were able to avoid messy proxyfights in 2018, unlike in previous years when conglomerates such asProcter & Gamble Co. came into activists' crosshairs.

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“That break will come to a screeching halt in 2019,” Liekefettpredicts. “I'd be very surprised if we didn't see a couple ofmega-cap proxy fights.” For well-capitalized activists, such asNelson Peltz's Trian Fund Management, Paul Singer's ElliottManagement Corp., Starboard Value, Valueact Capital Management, andD.E. Shaw, smaller targets don't really move the needle, hesays.

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One major trend set to continue into 2019 is U.S. activistslooking to Europe for targets. Elliott has been the most aggressiveso far, launching a proxy fight at Telecom Italia SpA and takingstakes in iconic European companies like Bayer AG, Pernod RicardSA, and others.

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“Why Europe? Valuations are better,” Rossman says. “There aremore conglomerates. It's the big and midsize companies that aremore vulnerable.”

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While proxy rules are different in Europe, companies'shareholder rosters are becoming increasingly similar to their U.S.counterparts, with asset manager BlackRock Inc., Vanguard GroupInc., and T. Rowe Price Group Inc. all investing overseas. Thenumber of campaigns focused on Europe has increased from 27 in 2013to 53 so far this year, the Lazard data show.

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“If you look at the register of most European companies, theyare dominated by U.S.-based shareholders. Trillion-dollar assetmanagers,” he says. “It's shifting the culture in Europe to onethat is more shareholder-centric.”

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Aneliya Crawford, a partner with law firm Schulte Roth &Zabel LLP, has been busy preparing strategic and governanceanalyses of potential European targets for the firm's U.S. activistclients. That's a shift from past years when the bulk of her timewas spent educating clients on local laws and how a campaign inEurope might differ.

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“It would scare people off because it's an unfamiliar, newlandscape,” Crawford said. “Now people are not nearly as fazed. Aslong as they feel there is a strategic path and they feel that thevalue is there, people are not concerned that they will be playingby different rules.”

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Unconventional Activists

In addition to first-time activists, traditionally passiveinvestors and even private equity firms have been publicly pushingfor changes at companies this year, says Andrew Freedman, co-chairof the shareholder activist practice at law firm Olshan FromeWolosky LLP. In particular, there's been an increase in executivestrying to shake things up at former employers, either by themselvesor alongside an activist, he says, pointing to campaigns atArcturus Therapeutics Ltd. and Perry Ellis International Inc.

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At Newell Brands Inc. and EQT Corp., former executives fromcompanies that were taken over have come back to push for changesat their acquirer.

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The common thread is that the antagonists believe they have ananswer to what's ailing the company and already own a significantchunk of the stock, Freedman said.

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“The ouster of former CEO and founders has been at all time highover the past five years as shareholder activism has gained moreclout,” Freedman said. “It's not surprising that you have foundersand former CEOs adopting the same activist tactics.”

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From: Bloomberg

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