The activist investor pushing to replace Campbell Soup's entire board of directors is changing tactics. Control of the company is on the line.
After months of fighting for a new board, Daniel Loeb's hedge fund Third Point now wants to replace just five of its 12 members. The move comes at a critical time: Next week, proxy advisory firms are expected to outline their recommendations on how shareholders should vote. The new pitch could help put the firms in Third Point's camp.
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Since the summer, Third Point and Campbell Soup have been locked in a vicious proxy fight. Third Point, disappointed in Campbell's management, has sued the company and lobbed several attacks on members of the board. Campbell, which wants to keep control, has fired back and dismissed the hedge fund's grievances.
Third Point came to the decision to reduce its slate of nominees after speaking with other investors, the hedge fund wrote in a letter to Les Vinney, chairman of Campbell Soup (CPB), on Friday.
Shareholders "believe that some continuity is a good thing," Third Point wrote, adding that investors have said "change is necessary to reverse decades of underperformance."
"We now understand that the Short Slate is exactly what is needed to set Campbell on a sustainable path to renewed competitiveness and growth," Third Point wrote.
Campbell's interim CEO Keith McLoughlin sent his own letter to shareholders in response, saying that Campbell has its own plans to refresh the board.
"We currently have a list of about a dozen candidates who we are considering for any upcoming vacancies, including vacancies due to three planned retirements occurring over the next three years," he said.
He added that Campbell has had "proactive conversations" with Third Point and that Campbell even offered to add two of the five proposed board members, Sarah Hofstetter, who worked on Oreo and Oscar Mayer ad campaigns, and Kurt Schmidt, former Gerber CEO, after the upcoming shareholder meeting.
"Third Point rejected this proposal," he said. "Instead, they have decided to continue this wasteful and distracting proxy fight." McLoughlin said that the offer stands.
Loeb, a billionaire who has a history of taking stakes in major companies and demanding change, holds about 7% of Campbell through Third Point. He has said that the soup company should put itself up for sale. But the company's management want to decide the fate of the 149-year-old company itself.
Third Point has always had a difficult battle: Descendant board members hold about 41% of the company, according to data from Refinitiv. Third Point has cited support from another descendant shareholder who controls nearly 3%, in addition to its own stake.
Loeb's decision to reduce the slate of nominees is a smart one, said Charles Elson, director of the center for corporate governance at the University of Delaware. "He increases his chances by reducing his numbers."
By nominating a full slate of new members, Third Point is promising shareholders that it has the answer to Campbell's problems, Elson said. But by recommending a minority slate, Third Point is putting the onus on Campbell to get its house in order.
And proxy advisers are "very reluctant to hand over control of the board, let alone the full board, to a minority shareholder absent extraordinary circumstances," said Kai Liekefett, a partner at the law firm Sidley Austin who leads Sidley's shareholder activism practice.
Advisory firms will sometimes recommend a split vote in favor of some current board members and some new ones, said Nicole Boyson, a finance professor at Northeastern University's D'Amore-McKim business school.
Third Point may be betting that a short slate could win a full endorsement, she said. But a split decision could also lead to a settlement. "When the proxy firm splits, both sides can claim victory," she said.
Campbell's annual shareholder meeting, where investors will vote on how to move forward, is scheduled for November 29. "This is a really critical time," said Jian Huang, an assistant professor in the department of finance at Towson University.