Upping the Ante in a Play for a Stronger Board
Would you pay a director tens of millions for fantastic performance? Welcome to the newest trend in activist investing: hedge funds paying their nominees to a company’s board as if they were chief executives.
The latest examples can be found in two prominent proxy fights. In the first, Paul Singer’s Elliott Management has acquired about $800 million in stock of the Hess Corporation, the integrated oil company. The hedge fund has nominated five directors to the 14-member Hess board and is agitating for change, arguing that the company has substantially underperformed its peers by 460 percent over the last 17 years.
In the second, Barry Rosenstein’s Jana Partners is storming the ramparts of Agrium, acquiring about 7.5 percent of the company, an agriculture supply retailer and wholesaler based in Calgary, Alberta. Jana, which contends Agrium has underperformed its peers by 160 percent over the last five years, has nominated five directors to the company’s 12-member board.
Agitating for changes and waging proxy fights are familiar pages from the activist investor playbook. What’s different here is that each hedge fund is promising to pay its director candidates what are essentially bonuses that could run into millions of dollars, if not more.
In Elliott’s case, its five nominees will be paid a $50,000 retainer, a mere tip. The kicker is that any of its nominees who win a seat on the Hess board and serve for a year will be paid an aggregate $30,000 for each percentage point the stock price of Hess outperforms a peer group of stocks over three years from January 2013, when the stock was trading at about $58 a share (it’s at $70 now). The total potential payment tops out at $9 million for each director — or 300 percent outperformance, an admittedly fantastic return for everyone if it occurs....MORE
