When packaging company MeadWestvaco Corp. (MWV) , of Richmond, Va., announced Monday it had signed to merge with Rock-Tenn Co. (RKT) , of Norcross, Ga., in a stock and cash deal valued at about $16 billion, it was just after it had postponed the deadline to nominate board directors.
That eleventh hour delay and an announced deal though may not be quite the panacea the company targeted by activist investor Starboard Value LP might expect.
The merger announcement comes roughly eight months after Starboard founder Jeffrey Smith launched an activist campaign at the company with a June 2 letter to MeadWestvaco arguing that the business' "conglomerate structure" was obscuring its true value and urging it to consider a variety of strategic changes. Also, until Friday, the deadline to nominate dissident investors to the company's board was set for Wednesday. However, on Friday, MeadWestVaco extended the deadline until Feb. 27, suggesting that the company was close to reaching an agreement with Rock-Tenn and wanted to give Starboard a chance to digest the details of the deal. Prior to the deal's announcement, Starboard managers - no strangers to proxy fights - were still eyeing the director election deadline and seriously considering a proxy fight, people familiar with the situation said. (Companies typically set that deadline 60 or 90 days before the anniversary of their previous year's annual meeting, which in MeadWestvaco's case was on April 28, 2014.)
To those unfamiliar with Starboard and its particular brand of activism it would have seemed prior to Monday's announcement that MeadWestvaco had already taken sufficient steps to appease the insurgent fund.
For example: On Jan. 8, the company, which has a market cap of $7.5 billion, said it was spinning off its specialty chemicals business into a separate publicly-traded company, a transaction which it is still committed to completing by year-end. Then, on Jan. 22 MeadWestvaco announced it was selling off its European-based tobacco folding carton business for an undisclosed amount. Starboard had demanded the company consider both these moves, particularly the spinoff. The activist fund also urged a hike in shareholder distributions and the company in November had declared a 0.25 cents a share dividend.
So after all these moves, likely made at the activist's behest, why was Starboard still considering a proxy fight?
At Wausau Paper, the company made two divestitures and removed its CEO under pressure from Starboard. Yet, the activist followed up with a proxy contest, urging stock buybacks, a dividend and seeking cuts to corporate overhead. In July, Wausau settled with Starboard adding one dissident director, a move that put Starboard firmly in control of the tissue paper company after it had installed four of the candidates backed by the dissident in the prior two years. After the final settlement, the company hiked dividends.
At MeadWestvaco, where Starboard owns a 6.1% stake, the fund clearly benefits from the deal with the company's stock price up 14% to close at $51.35 per share Monday. Yet, when Office Depot agreed to a $1.2 billion merger with OfficeMaxInc. (OMX) in February 2013, Starboard still launched a proxy contest, partly because Smith wanted to be involved in a post-deal integration efforts. He settled for three board seats including himself. Smith also had a hand in recruiting Office Depot's CEO, Roland Smith, a former supermarket executive, before leaving the board in September.
Starboard did not return requests for comment on whether it still wanted to get involved at MeadWestvaco. A company spokesman said there had been no public indication of Starboard's future intentions.
But still on the table at the packaging company are the activist's other demands that MeadWestvaco monetize real estate assets in Brazil and South Carolina and take steps to "realize value" from its "overfunded pension" plan.
Also there's this: In December, when Starboard upped its stake to 6.1%, it also entered into an advisory agreement with Steven Klinger and George Wurtz, two people the fund retained with a $50,000 fee. In an SEC filing, Starboard said it retained them because of their "unique skill set, industry experience and industry knowledge." Wurtz is chairman of Soundview Paper, a tissue products company, and Klinger is former COO of Smurfit-Stone Container Corp., according to a Starboard filing.
However, the person familiar with Starboard says that Wurtz and Klinger could make good dissident board candidates, suggesting that the activist was seriously considering a campaign. Starboard, this person said, hires people as advisers to teach the fund about the industry and help it identify areas in which a company could improve.
But those same people, this person said, are also hired because they could make good potential board members.