Elaine Wynn’s withhold campaign concluded this week, with a resounding success. Targeted director John Hagenbuch withdrew his name from contention the day before the annual meeting after unanimous support from proxy advisory firms and former Nevada Governor Robert Miller stepped off the board.
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One source told me that withholds on Hagenbuch may have outnumbered votes for by six-to-one, and while the full results will likely never be published, results for the company’s “say on pay” resolution should hint at the extent of the dissatisfaction when they are released, probably on Monday or Tuesday.
As a corporate governance shambles, Wynn Resorts pretty much had it all. Steve Wynn resigned in disgrace following allegations of sexual harassment earlier this year, sent on his way by a board which, as his ex-wife never ceased to point out, had expressed a “collective heavy heart” at seeing him go.
After the initial scandal, the board quickly added three female directors to solve a gender diversity problem Elaine Wynn had railed against as far back as 2015, when she ran a proxy contest seeking re-election against the board’s recommendation.
Moreover, the decision to push her outside the tent some five years after she and Steve Wynn divorced in 2010 now looms large among the mistakes made by the board, which will have endured at least a 60% turnover by next year.
Yet the success of the withhold campaign was not necessarily guaranteed. Elaine Wynn had started by seeking to nominate directors, including suing to reopen the nomination window on the basis of material changes to the casino operator’s circumstances. Had she succeeded, the results might not have been so comprehensive – in later presentations, she said explicitly that she was not seeking a seat.
Back in 2015, Elaine Wynn’s candidacy was slated by Institutional Shareholder Services, which recommended shareholders vote for none of the candidates up for election. In the contest, coincidentally also against Hagenbuch, she won 26.6 million votes to her opponent’s 46.6 million; 10 million of the votes Elaine Wynn received were from her ex-husband, pursuant to a stockholder’s agreement dating from their divorce. One person I spoke to this week pointed out that proxy contests invite shareholders to weigh up the pros and cons of each slate, while withhold campaigns can focus attention on the misdeeds of a board.
Perhaps the most important governance question is, where does this dust-up leave Wynn Resorts? According to Activist Insight Vulnerability, the company has only a moderate chance of an activist campaign – a middling return on assets offset by gangbuster total shareholder return. Like one of its hotel rooms, it is also priced at a premium.
Nonetheless, with Steve Wynn selling his 10% stake before the vote, a couple of activists apparently sensed an opportunity. Third Point Partners and Land and Buildings disclosed positions in the stock this week. As Wynn Macau comes onstream, the company is likely to overtake its peers following a period of underpeformance. In 2017, revenues were up 41%. The company is also buying off its shareholders with increased dividends.
Elaine Wynn is unlikely to be happy to stop there. Her main interest during the campaign appeared to be continuing with the development of the company’s troubled Boston Harbor development, arguing that “legacy directors would prefer to sell Wynn Boston Harbor rather than have their actions scrutinized by gaming officials.”
Other shareholders might prefer a sale of the entire company but at a $27 billion enterprise value and with new doubts over the threat to Las Vegas from U.S.-wide sports betting legalization, it would be a brave activist to pin its hopes on that.
The long-anticipated convergence of activism and private equity is habitually pushed back but if anyone is going to make a business out of it, it might be Sycamore Partners. Stefan Kaluzny, whose fund bought Staples last year, is using that company to make a play for Essendant, another office supply company currently planning to sell itself to a subsidiary of Genuine Parts. After taking a 9.9% stake this month, Staples went public with its offer in the midst of negotiations over a confidentiality agreement, sending the stock up 19% Thursday despite Genuine Parts confidently stating that its deal was on track to complete by the end of this year. For Essendant this was a long-time coming. The Deerfield, Illinois-based company had made a number of missteps in recent years, as noted by Activist Insight Vulnerability’s August 2017 prediction that a campaign could be in the making.
For many onlookers, the drama at CBS, which was hosting a special board meeting at which it planned to discuss how to deal with pressure from controlling shareholder National Amusements at the time of writing, is truly extraordinary. Not so much Chancellor Andre Brouchard of the Delaware Chancery Court, who ruled yesterday that the company would have to fight a long and messy legal battle against National Amusements if it wanted to prevent that firm’s de facto leader, Shari Redstone, from replacing its bylaws or directors. In our quote of the week, summing up his reasons for allowing National Amusements to proceed – at least temporarily – Brouchard wrote:
No precedent has been identified, however, in which the court has ever entertained, much less sanctioned, the type of request for relief that plaintiffs [CBS] make here. In and of itself, this suggests that a truly extraordinary set of circumstances would be necessary to grant such a request.
Article by Activist Insight
