By David Benoit
Bank of New York Mellon Corp., the nation's oldest bank, gave
Nelson Peltz's investment firm a seat on its board, joining a raft
of companies that have recently opened the door to activists and
headed off bruising public fights.
The 230-year-old bank on Tuesday added Trian Fund Management LP
co-founder Ed Garden to its now-14-member board five months after
the firm took a 2.6% stake in the company and began privately
pushing for cost cuts and other measures.
That Bank of New York decided to give the $10 billion investment
firm a seat on its board highlights the clout of activist
investors. These investors typically take stakes in companies and
then agitate for changes such as asset sales or stock buybacks to
bolster share prices.
"We have had valuable discussions with Ed and Trian over the
past several months about our progress," BNY Mellon Chief Executive
Gerald Hassell said in a prepared statement.
Dow Chemical Co. in November settled with Daniel Loeb, adding
two independent nominees the activist had proposed to the board. In
September, Walgreen Co. gave Jana Partners LLC two board seats.
Smaller activist investors are also notching wins. Barington
Capital Group LP on Monday reached a pact to add its chief
executive and an independent nominee to the board of software
company Ebix Inc.
Activists are getting increasing support from other shareholders
and often winning board seats if their slate is put to a vote.
Activist investors this year have scored at least a partial
victory, either by a vote or by a settlement, in 72% of all
shareholder votes, far exceeding last year's record 63%, according
to FactSet SharkWatch.
Company directors "may reach a conclusion and say, 'Wow, we are
going to spend a lot of time fighting and get to a result that is
nowhere near as satisfactory,' " said Bruce Goldfarb of Okapi
Partners LLC, which advises on proxy fights. "Why get into this
kind of nasty dragged-out name-calling situation?"
But the decision is fraught with risks. By opening their
companies to an activist investor, directors could be setting
themselves up for years of acrimony within the boardroom.
For that reason, some companies remain disinclined to welcome
any activist investor into the boardroom, some advisers said.
Companies fear that activists could push changes designed to
produce short-term gains for shareholders.
Even institutional investors that have supported activists in
the past have warned that some common proposals, particularly stock
buybacks, are sometimes a bad idea.
Today's activist campaigns include pitches for improving a
company's operations and moves to add board members with deep
industry experience. That has increased the pressure on companies
to engage with activists or risk alienating other shareholders who
are receptive to their ideas.
And proxy fights could quickly turn ugly for companies.
Shareholders ejected Darden Restaurants Inc.'s entire 12-person
board after Starboard Value LP and Barington criticized the
company's decision to sell the Red Lobster chain and went so far as
to suggest Olive Garden change how it prepares pasta. The CEO of
auction house Sotheby's recently resigned, six months after the
company gave Mr. Loeb three board seats following a public battle.
The departing CEO, William Ruprecht, said Sotheby's was
"well-positioned for the next chapter."
Many companies see those outcomes and look to reach an agreement
before a fight, some advisers said. Trian also seeks to avoid such
brawls and has gained a reputation for negotiating its way into the
boardroom. While it won't hesitate to publicly criticize a company
or publish long white papers detailing its plans, it hasn't waged a
full-fledged proxy fight since 2006 with H.J. Heinz Co.
The firm now has negotiated for at least one board seat on seven
of the 11 companies in which it has a stake.
Founded by Alexander Hamilton in 1784, BNY Mellon this year had
faced pressure from investors who criticized it as slow to change
and in need of a retrenchment.
A 2007 purchase of Mellon Financial Corp. didn't produce the
benefits shareholders had expected.
"Despite actions taken by management, our bias is to see more
aggressive actions and targets away from the status quo," CLSA
analyst Mike Mayo wrote in April following the bank's annual
meeting.
BNY Mellon's stock is up 15% this year, beating the KBW Bank
Index's 4.7% gain. But over five years, the bank trails the index.
On Tuesday, BNY Mellon's stock rose 1.8%, to $40.28.
As a custody bank, BNY Mellon safeguards $28.3 trillion in
assets for money managers, companies and other clients, performing
administrative functions on behalf of other banks and corporations.
It is also an investment manager, with $1.6 trillion of assets
under management.
Mr. Mayo has repeatedly suggested BNY Mellon spin off its
asset-management arm, but the bank has rejected that idea.
Trian, founded in 2005 by Mr. Peltz, Mr. Garden and Peter May,
disclosed its stake in the bank in June. The firm presented its
cost-cutting ideas to the bank's leaders in private conversations
beginning in July. Trian had made similar proposals to BNY Mellon
rival State Street Corp. in 2011. State Street ultimately cut
costs.
In October, BNY Mellon laid out a plan to cut $500 million in
expenses through 2017, targeting investment services, operations
and technology. Trian has expressed support for those plans,
according to people familiar with the conversations.
"We have taken and are continuing to take very aggressive
actions to improve our earnings and margins, no matter what the
environment that we're operating in," Mr. Hassell told investors in
October.
Trian never threatened to launch a proxy fight for board seats,
even in the private discussions, the people said. Still, this
week's deal came just days ahead of a deadline for Trian to launch
such a fight.
A less confrontational approach isn't always successful.
DuPont Co. has rebuffed Trian's requests for a board seat for
more than a year. In response, the activist firm in September
publicly called for a breakup of the chemical company. DuPont has
rejected the idea, saying it is already taking some steps to shrink
and that its returns are strong.
On Monday, Mr. Peltz resigned his director post at Legg Mason
Inc. to free himself up for other board work, a move that signals
the possibility of a DuPont proxy fight, according to a person
familiar with the matter. The window to launch such a campaign for
next spring's annual meeting opens later this month.
Trian has also expressed interest in joining the board of
PepsiCo Inc., where it has been agitating the company to split its
beverages and snacks businesses.
Saabira Chaudhuri contributed to this article.
Write to David Benoit at david.benoit@wsj.com and Saabira
Chaudhuri at saabira.chaudhuri@wsj.com
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