Pop Culture Proxy Fights
by Dan McDermott | Yahoo! Finance | December 17, 2019
In the 1987 film Wall Street, Michael Douglas’ character Gordon Gekko gave the famous “Greed is Good” speech during a hostile takeover of his target, Teldar Paper. This scene is arguably still the most well-known portrayal of an activist shareholder. Recently, however, shareholder activism has returned in dramatic fashion to Billions on ViacomCBS Inc.’s Showtime and Succession on AT&T Inc.’s HBO. Both hit shows depict hostile takeovers/proxy fights as central themes. Viewers might wonder: Does this kind of thing really happen? And, if so, how accurate are the shows’ respective depictions of events?
Starting with Billions, Bobby Axelrod (see Steve Cohen of S.A.C. Capital/Point 72 capital for the character’s inspiration), played by Damian Lewis, wages two proxy fights during the course of the series. In Season 1, Axelrod wages a proxy fight at Yumtime (see Hostess Brands for likeness). In Season 4, Axe wages another proxy fight at Saler’s (see Sears) with private equity investor/love interest Rebecca Cantu played by Nina Arianda. Let us focus on Axelrod’s engagement with Yumtime, which shares the most real-life similarities with an actual proxy contest.
Companies often become vulnerable to activist hedge funds through sustained underperformance. In particular, lower stock price returns versus a group of peer companies can invite an activist hedge fund – like Axe Capital – to make an argument that change is necessary at the company’s Board of Directors, C-level management or both to turn the company around. In the case of Yumtime, Axe demonstrates that the dessert-pastry company had delivered poor performance for shareholders and offers a solution to turn the company around:
Bobby Axelrod’s Criticisms of Yumtime
- Yumtime’s profits declined over 8 years
- Declining profits linked management’s decision to use cheaper synthetic sugar in pastries rather regular sugar as a key ingredient
- The use of synthetic sugar hurts the quality of the product, impairing the taste, resulting in declining sales
- During the period of declining sales, CEO’s compensation package ballooned over 300% including excessive perquisites like using company jet for personal travel
- CEO tenure coincides with prolonged period of underperformance; therefore he is responsible and should be held accountable
Bobby Axelrod’s Solution to Improve Performance
- Replace synthetic sugar with normal sugar and improve product quality/taste
- Fire CEO and members of the Board of Directors responsible for poor performance
- Eliminate excessive executive compensation and reinvest into the business
Similar to a tactic used by many real life activists, Axe Capital builds up a 4.9% stake in the company, staying below the SEC’s 13D 5% filing requirement. With that position, he gets a meeting with the Board where he tells the Board that management has tampered with its recipes to help profits but the changes hurt the product (see Darden Restaurants, Inc.’s Olive Garden/Starboard) and he talks about increasing his position during the meeting. Axe is accused of being short-term focused, trying to drive up the share price and sell without concern for long-term shareholders. As with most plotlines in Billions, Bobby Axelrod gets what he wants, obtaining a few board seats at Yumtime so he can deliver his turnaround plan.
Overall, both Billions and Succession accurately depict the tactics, strategies and personalities we see in real-life hostile takeovers and proxy fights. While there may be some expected dramatic effect, there are plenty of actual inspirations for a dramatic confrontation. It’s very sensible that both HBO and Showtime would use shareholder activism as major plotlines for their hit shows. It would be difficult to find a sexier inspiration in corporate finance.
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