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Oct 24, 2013

Icahn’s new megaphone for shareholder activism

If posts on his website anticipate proxy contests, the famed activist investor will have to abide by securities law by filing with the SEC as needed

Is legendary investor activist and corporate raider Carl Icahn trying to claim the moral high ground on corporate governance with a new website he launched on Thursday called Shareholders’ Square Table?

The barely veiled reference to the highly principled knights of King Arthur’s court and a satirical cartoon on the home page that shows shareholder activists storming a medieval castle representing entrenched management interests seem to suggest that, says Mark Gerstein, a partner at Latham & Watkins and global chair of its M&A practice.

And to ensure visitors don’t miss the point, the caption makes it obvious. ‘A lot of people died fighting tyranny. The least I can do is vote against it,’ reads a statement attributed to Icahn at a Texaco annual meeting 25 years ago.

The website ‘pillories management and directors, which is a fantastic over-simplification and a gross injustice to most of the boards and management teams out there,’ says Gerstein. ‘And it seeks to position Icahn’s effort as one premised on a moral certainty, as opposed to an effort to just make more money for himself.’

Icahn christened the website on October 24 with articles decrying board approval of a $55.6 million golden parachute pay package for BlackBerry CEO Thorstein Heins and condemning the use of poison pills to avoid takeovers deemed hostile. But what garnered the most attention was the posting of a letter he’d sent to Apple CEO Tim Cook calling for an unprecedented $150 billion share buyback, promising that it would yield an immediate 33 percent boost in earnings per share that would translate to a 33 percent increase in the stock price.

In the letter, Icahn also mentions adding 1,282,076 shares to his Apple position since August, when he held 3,448,663 shares, and that he plans to purchase more. There’s no explicit ultimatum, but knowing Icahn’s track record, it’s easy to imagine a future scenario if the buyback doesn’t materialize. Icahn has won proxy battles at such companies as Yahoo but lost many others, including an attempted takeover of Dell this past summer.

An activist investor launching his own website is nothing new. Activists have previously created sites to help fight specific proxy battles. But Icahn’s site, so far, seems more philosophical in nature than most; it isn’t pitched at any particular proxy contest he may have his sights on, notwithstanding initial posts targeting Apple and BlackBerry.

The website may turn out to be part of a carefully conceived plan to promulgate certain ideas Icahn has about such basic corporate governance issues as staggered boards or majority voting in director elections. If so, the aim may be to make it all but impossible for anyone to oppose such ideas later when he marshals them for a particular proxy fight, suggests Joe Johnson, a partner at Goodwin Procter in Boston who heads the firm’s M&A corporate governance group.

If statements on the website end up anticipating proxy contests he may be considering, one thing to watch is how Icahn will handle his obligations under securities law requiring the filing of preliminary proxy materials or a Schedule 13D that alerts the public to beneficial ownership of more than 5.0 percent of publicly traded shares, says Gerstein.

‘I don’t think the website will affect [the SEC’s] collusion analysis,’ he says. For Gerstein the broader question is whether it serves communications by stockholders toward existing solicitation materials that may need to be filed with the SEC for proxy contests that are pending or have already been launched.

‘Basically he’s using it as a megaphone,’ says James McRitchie, publisher of the website ‘He’s not allowing comments on his blog yet so colluding of any sort wouldn’t come in until there’s some sort of dialogue among a group of [shareholders]. The ‘dialogue’ right now is one-way.’

McRitchie says he would hope Icahn is interested in using the website as a forum for two-way communication, which websites such as Sharegate facilitate. ‘In my ideal world, he’d use his own vehicle and participate on other forums, but that doesn’t seem to be the way he operates,’ he says.

Johnson says it’s doubtful other activists will follow Icahn’s example with websites of their own. ‘Not everyone is like Carl. They’re going to want to devote time to their investments and not spend time on philosophical issues’ that aren’t directed specifically at making money, he says.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary