Corp gov types have struggled for years to achieve what Carl Icahn just won in a matter of a few months. In three cases, a portfolio company agreed to meaningful corp gov reforms, and headed off a potential proxy contest.

The changes that Icahn gained illustrate neatly how PMs should think about corp gov at portfolio companies. Icahn identified clearly what, exactly, would meet investors’ financial goals for each company, and targeted just those changes. No broad corp gov agenda, only what each situation requires.

All three involve spinoffs that typically would erect steep obstacles against a prospective buyer. In all three instances, Icahn instead cleared the path for such buyers.

The settlement agreements at eBay, Manitowoc, and Gannett set forth the arcane detail. We’ve addressed settlement agreements in general before, and each could serve as a case study on that subject.

Happily, his efforts agree with our corp gov priorities. We’ve not seen settlements like this before. In this way, these particular agreements break new ground in corp gov reform.

Three Portfolio Companies

Some comments about each situation:

At eBay, Icahn mixed it up with the company for a year. Earlier we highlighted how Icahn proposed a non-binding resolution there (another interesting corp gov ploy), and finally agreed with eBay to appoint a director. Once eBay announced it would spinoff PayPal late last year, Icahn won a director and the corp gov reforms at the spinoff.

At Manitowoc, Relational Investors started the process with a detailed critique of the construction crane and food equipment company. Icahn picked up on the effort, and last month the company announced it would split in two. Icahn will appoint one director for each half. The food equipment half will reincorporate in Delaware, and implement the corp gov improvements.

At Gannett, Icahn promised a proxy contest after it announced a spinoff of its publishing business. (At the other two, Icahn didn’t threaten anything, at least publicly, before they settled.) This week, Gannett agreed to the corp gov reforms without a director appointment. Icahn then withdrew his two director nominees.

Also at Gannett, Icahn set forth his proposed corp gov changes in the letter with his director candidates. He achieved most of these in the settlement with the company:

1. ❖He originally proposed that 10% of the outstanding shares could request a special meeting, and settled for 20%
   

2. ❖He proposed allowing shareholder action by written consent, not included in the final deal
   

3. ❖The company agreed to his other ideas (below).
   

Seven Corp Gov Reforms

We summarize the corp gov reforms as follows:

Each company can use a poison pill. It triggers at 20% of outstanding shares, a relatively high threshold in light of recent versions we’ve seen. The BoD can approve it, and it expires within 3-5 months if shareholders fail to ratify it.

All three companies will allow 10-20% of outstanding shares to request a special shareholder meeting. All three can exclude any BoD changes from a special shareholder meeting agenda, so a meeting could consider only deal approval.

Some items explicitly concern possible deals. Business combinations pertains to how much of the company an investor can own before it cannot buy the entire company. Delaware statute provides for a 15% limit, which companies can change or opt-out of (DGCL Section 203). Gannett will opt-out, while eBay will increase the limit to 20%. At Manitowoc, a 15% threshold will apply to the half of the company that stays in Wisconsin, rather than the 10% in the similar Wisconsin statute. The half that incorporates in Delaware will presumably fall under the 15% threshold of DGCL Section 203, and will then be consistent with the Wisconsin company.

All three companies allow an initial bidder access to confidential information if a subsequent bidder tops the initial bid (“topping bids”). And, all must call an annual shareholder meeting within a year of the spinoff, which means that shareholders will have an opportunity to vote on a deal that soon.

At eBay, Icahn also eliminated a “poison put”, similar to a poison pill. If one or a group of shareholders exceeds a threshold, typically 15%, then the company triggers a debt default, or in this case change-in-control terms in employment agreements. He did not, though, achieve this at Manitowoc or Gannett, or even ask for it at Gannett.

Three Missing Ones

What’s missing? Mandatory majority vote for BoD incumbents and separate CEO and BoD Chair roles, two priorities of other corp gov aficionados. Icahn also didn’t address proxy access in any of its forms.

We see clearly the corp gov priorities of a leading activist investor. Icahn wants to overcome barriers to achieving value, which usually means deals. He cares less for resolving conflicts of interest or vague efforts to improve director accountability to shareholders.

Icahn’s priorities match ours: poison pills and staggered boards. He could not eliminate poison pills, but he at least made them reasonable at 20%, and subject to shareholder approval.

Icahn also packaged several ideas into a single set of reforms at each company. No single idea can stand alone. Yet, not all ideas add value in the right way, so he bargained for those that will.

Winning these reforms requires pressure on a company, here in the form of a proxy contest. No resolution or vote, just a reasonable demand to empower investors, from a clever, powerful shareholder. Worth remembering the next time you think about what you’d like to do at a portfolio company.