Drawing on his team's plentiful experience gained from squaring off with Sardar Biglari, Cracker Barrel Old Country Store General Counsel Michael Zylstra has partnered with Bass Berry & Sims attorney Howard Lamar to outline a playbook for handling the not-so-friendly approaches of an activist investor. Among the major points the two emphasize is the need to stay away from grandstanding — that's reserved primarily for the Biglaris, Ackmans and Icahns of the world — and to communicate clearly to the company's employees, who can be strongly affected by activists' claims. Also key: Working hard to get major shareholders up to speed and inoculated against the activist.
These interactions provide not only insight to the business of a company but also provide shareholders an appreciation for the importance of independent oversight through the board of directors. Furthermore, this empowers shareholders to be more trusting of management and the board, and potentially to be less susceptible to claims made by an activist as to allegations of improper or entrenching motives of management or a company’s directors. Notwithstanding the potentially persuasive observations of an activist, the development of relationships by a company’s representatives over time can be a significant advantage when shareholders are faced with choices in a proxy contest.
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Healthways CEO Ben Leedle on Tuesday passed on to his employees word of the wellness company's ceasefire with activist investment fund North Tide Capital. Calling the deal to give North Tide three board seats a "positive outcome," he also took time to point out that he — a prime target of North Tide manager Conan Laughlin — and other senior executives will stay in their jobs.
In addition, Leedle described the Strategic Review Committee that will soon be formed as having the goal "to assure that the board and management remain aligned on the company strategy." That's an interesting — and, given Laughlin's calls for big changes, perhaps somewhat optimistic — spin on the language contained in the standstill agreement, which says "the purpose of the Strategic Review Committee shall be to review, evaluate and make recommendations to the Board regarding the Company's business strategy."
Here's a copy of Leedle's email:
North Tide Capital, the hedge fund taking aim at the Healthways board of directors, has updated its presentation to investors. The new version is beefed up with more questions about the company's investments in (and revenues from) initiatives such as MeYou Health, the Dean Ornish lifestyle management program and the Blue Zones partnership with Gallup. The new presentation — view it here and compare it to the old one here — strikes a tone that is softer at times but as strident as before in other places, especially in terms of the Healthways board's unconditional backing of CEO Ben Leedle and his strategies.
Some items that caught our eye:
• Addressing the company's insistence that its Silver Sneakers senior fitness program is a way to leverage costs across the company, North Tide manager Conan Laughlin says "Silver Sneakers funds a giant, money-losing science experiment."
• Tipping his hat to the board for disclosing that Healthways' international business posted a 2013 EBITDA of $3 million, Laughlin then turns around to say that means "the non-Silver Sneakers business loses more money than we had thought."
• North Tide quotes a note from Dougherty & Co. analyst Brooks O'Neil that thinks out loud about director candidate Mac Crawford becoming not just executive chairman if elected, but also filling the CEO seat now held by Leedle.
The board and management of Healthways have responded at length to the proxy challenge mounted by North Tide Capital hedge fund manager Conan Laughlin, who wants big changes at the company and is pushing for four board seats at its upcoming shareholders' meeting. Healthways leaders say Laughlin's ideas to spin out SilverSneakers and shut down international operations suggest he doesn't truly understand the company's business. Also among the components is a defense of the vision of CEO Ben Leedle, whom Laughlin wants to boot out, and letters of support from two big customers.
Healthways investors will vote June 24 on the North Tide proposals. The company's shares (Ticker: HWAY) closed Wednesday trading at $17.88 and have risen 16 percent so far this year.
Sardar Biglari's quest to change the strategic direction of Cracker Barrel Old Country Store is turning into a case study of diminishing returns. At the recent special shareholders' meeting called by the 20 percent investor, his push to have the board consider "immediately pursue all potential extraordinary transactions" received barely a million votes from shareholders not named Biglari.
Here's how the votes have trended over the past three and a half years:
December 2011 board seat – 6.6 million total and 4.3 million without Biglari stake
November 2012 board seat – 5.6 million total and 1.5 million
November 2013 board seat – 5.9 million total and 1.2 million
April 2014 sale motion – 5.8 million total and 1.0 million
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