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Companies, Activists Declare Truce in Boardroom Battles

Corporate Executives, Directors Find It Cheaper to Negotiate Than Fight

By David Benoit

Dec. 9, 2013 8:01 p.m. ET

Activist investors are increasingly encountering an unusual reception when approaching corporate targets: an open door.

Instead of pulling up the drawbridge as activists approach, corporate executives and directors more often are engaging, concluding that it is easier and cheaper to negotiate rather than resist and risk a public fight, advisers and executives said.

Even Carl Icahn, long seen as the archenemy of chief executives, is finding the path to the boardroom easier to tread. Mr. Icahn, among the most relentless of activists, secured representatives on more boards this year than he ever has, without resorting to shareholder-vote battles.

"I'm even surprised," Mr. Icahn said in an interview. "Being admitted to all these boards without a proxy fight would have been unthinkable only a year ago."

Mr. Icahn attributes his streak to a new openness among companies to the notion that working with him could be good business. "The thing that changed is people understand that the thing I do is very often successful," he said.

Others point out that companies are generally becoming more receptive because activists increasingly enjoy the support of long-term institutional shareholders that traditionally allied with management. That relationship means companies who resist activists could risk alienating their broader shareholder base.

Activists have won or settled for a board seat in 66% of all proxy contests this year, up from 43% last year, according to proxy-advisory firm Institutional Shareholder Services Inc.

Deals lawyer Phillip Mills, who advises companies, said activists and corporate boards are finding it better to settle because fights can be debilitating for both sides. Also, companies typically extract something in return for concessions to activists, for example, an agreement by an activist to limit the size of a position they will build or refrain from waging a proxy fight.

Mr. Icahn's firm, Icahn Enterprises LP, has reached agreements this year with seven companies to place at least one of his representatives on their boards, including five pacts in the past two months. Each time, he avoided a shareholder vote and, for the most part, critical comments toward the companies.

Mr. Icahn's firm has never before secured seats on more than six boards in one year, either peacefully or through a proxy fight, according to FactSet SharkWatch. Monday marked the latest pact. He placed two representatives on the board of Hologic Inc., an imaging and diagnostics company, less than three weeks after disclosing a stake.

Hologic said Monday that it would look forward to working with Mr. Icahn's appointees. Mr. Icahn agreed, among other things, to vote his shares in favor of the board's recommendations at the next annual meeting.

Companies have also struck deals with other activists. Microsoft Corp. agreed in August to give activist ValueAct Capital Management LP the right to a board seat, though ValueAct hadn't launched a proxy fight.

Meanwhile, other activists are finding companies acting on their recommendations, even without the investor securing board seats. Jana Partners LLC attempts to avoid fights, though will battle when needed. Five companies have made strategic decisions this year similar to what Jana proposed in federal filings, each time without Jana seeking board seats.

Not every approach is embraced. Agrium Inc. rejected most of the advice from Jana Partners and in April defeated the activist's attempt to install a slate of directors on the board of the Calgary-based fertilizer company. And companies increasingly are pitched by bankers on steps to take to avoid an activist overture in the first place.

There has been an uptick in U.S. proxy campaigns this year, with 35 fights through November, up from 27 at that time last year, according to data from ISS. Both of those figures are down from 43 at this point in 2009, according to ISS. The amount of activist campaigns in general for both years is up from 2009, according to FactSet, suggesting proxy fights are declining as a percentage of overall activity.

Mr. Icahn has long been seen as one of the feistiest fighters. That is what makes his 2013 record notable. "The best way to win the war is not to fight," he said.

He maintains it is his performance that is doing the talking. Since 2008, if an investor had bought stock in the 20 companies Icahn Enterprises joined and held for as long as they were on that board, the investor would have earned a 28% annualized return, Mr. Icahn said. The publicly traded shares of Icahn Enterprises have more than tripled this year. By comparison, the Dow Jones Industrial Average's total annualized return is 16% since the end of 2008 and about 25% this year.

Talisman Energy Inc., a Calgary-based oil and gas producer, reached an agreement this month with Mr. Icahn, granting two board seats.

Mr. Icahn reported a 6% stake in Talisman in October and said in a filing he may have conversations with management about strategic alternatives and board seats. Other than a similar message to his nearly 120,000 followers on Twitter, Mr. Icahn was silent on the matter afterward. Behind the scenes, though, he had several meetings with Talisman, both sides said.

"Our conversations to date have been constructive and open," a Talisman spokesman said. "He took an interest in the company as he sees the company's potential, but also recognizes some of the challenges."

People close to other companies in which Mr. Icahn secured board seats this year echoed that sentiment, including Herbalife Ltd. and Nuance Communications Inc.

Even Mr. Icahn's tussle with Apple Inc. over its cash hoard has remained mostly cordial: Apple Chief Executive Tim Cook dined at Mr. Icahn's New York apartment in September.

Mr. Icahn still won't back away from a fight. He won a board seat in a proxy vote this year against Transocean Ltd., though even there he later managed to add another representative without a battle.

And he spent several months dueling Dell Inc., in which founder Michael Dell wanted to buy the company. Mr. Icahn accused the Dell board of being the worst he had seen. He ultimately failed to stop the buyout, but the price was bumped up.

Write to David Benoit at david.benoit@wsj.com