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While activist investors usually launch public campaigns with high hopes, not all make it to the finish line.

So far this year, quite a few high-profile campaigns never made it to a vote. Starboard Value, for example, nominated slates at seven companies in 2019 but shareholders did not vote on the election of any of its nominees because the activist either settled or withdrew its slate before the shareholder meeting.

During the period ending May 29, 8% of all resolved demands were withdrawn, down from 13% during the same period last year, according to Activist Insight Online. Of those 48 withdrawn demands, 15% were in the healthcare sector and 12% were in the technology sector.

“When an activist chooses not to pursue a campaign, there’s a variety of reasons and factors that impact its decision,” Bruce Goldfarb, CEO of Okapi Partners, told Activist Insight Online. “Activists withdraw campaigns for reasons that are very much dependent on the actions the companies take and market forces.”

Silver lining

Activists will oftentimes withdraw demands if companies agree to positive change, including a transaction. Sachem Head Capital Management in May agreed to withdraw its demand for two board seats at Eagle Materials after the company announced plans to separate its heavy materials and light materials divisions into two independent, publicly traded corporations.

Two weeks earlier, Altai Capital Management withdrew its two-person slate at Amber Road after the firm announced that it would sell itself to E2open for $425 million in cash. Altai, alongside Sidus Investment Management, previously pressured the firm to sell.

Others, however, have confidence in a firm’s change even if the results aren’t as concrete. “Sometimes campaigns are withdrawn because the company does an action the investor approves of,” Goldfarb said.

Starboard Value in April withdrew its seven-person slate at Dollar Tree after the discount retailer said it will consider a new multiprice strategy. Starboard previously urged Dollar Tree to consider multiprice points and sell its Family Dollar chain (Dollar Tree responded to the latter demand by integrating the chain even deeper). The activist, which owns a 1.7% stake in Dollar Tree, said it believes the new strategy provides “substantial opportunity for further value creation.” Since Starboard’s April 5 announcement, shares in Dollar Tree have dropped 5%, although the results of the company’s multiprice strategy have yet to be published.

Disqualified

Yet not all situations that convince an activist to withdraw are positive – some, in fact, are more dispiriting than encouraging. Voce Capital Management was compelled to withdraw its five-person slate at Argo Group International after two state insurance regulators revoked their approvals for solicitations. The activist blamed the abrupt reversal on Argo’s “lobbying” efforts. The Bermuda-based insurer, however, said Voce was using the issue “as an excuse” for failing to address “rudimentary state regulatory requirements” that did not allow its proposals to go to a vote.

Even though Voce’s proposals were not voted on, the proxy fight had an impact on standard resolutions. At the annual meeting, 49.5% of investors voted against Argo’s compensation plan, a key point of Voce’s campaign.

“By casting a light on companies’ shortfalls, activists are able to shift the optics and put reputational pressure on the board,” Andrew Freedman, a partner at Olshan Frome Wolosky and a co-head of its activist and equity investment group, told Activist Insight Online.

Similarly, Blue Lion Capital last year was forced to withdraw its slate at HomeStreet after the company rejected the nominations, claiming the activist’s notice “was incomplete in myriad ways.” Since then, HomeStreet has begun to exit its mortgage business, following demands from Blue Lion to reallocate capital from the mortgage segment to the commercial bank. Blue Lion, which last year said the bank’s directors were “afraid of losing an election contest,” relaunched its campaign for board representation this year. Shareholders will vote on its two-person slate at the annual meeting on June 20.

Hard times

Other times, activists withdraw to save face when they know a loss is inevitable. The decision frequently comes after proxy advisers express support for management, as was the case with Bristol-Myers Squibb’s proposed transaction with Celgene, which Starboard strongly opposed. The activist pulled its campaign only after Institutional Shareholder Services and Glass Lewis recommended a vote for the merger. Similarly, Carl Icahn last year abandoned his fight against Cigna’s merger with Express Scripts after both leading proxy advisers backed the deal.

Sometimes activists will also withdraw from a proxy fight soon before the annual meeting if preliminary voting results indicate a loss with a large margin – although the practice is frowned upon by the Securities and Exchange Commission because it can disenfranchise shareholders. In Canada, Medison Biotech withdrew its nominees the day of Knight Therapeutics’ annual meeting. A proposal by Medison seeking to prevent any Knight CEO from owning shares in a competitor was rejected by 77% of shareholders, indicating that a similar fate was likely to befall the activist slate.

Nonetheless, Medison said it believes its campaign “created unanimous consent that an immediate change is required at Knight.”

Freedman acknowledged that activists may want to avoid “embarrassment from a vote count,” but warned that they should “think long and hard” before deciding to withdraw proposals. “It can come back to haunt you in future situations,” he said. “You don’t want to be seen as an empty threat maker.”