Unlike most activist proxy contests, however, H Partners Management wasn't pushing a dissident slate of director candidates. Instead, the fund, which is based in New York, employed a so-called "just-vote-no" campaign, seeking to have shareholders vote against incumbent director candidates even though they were running unopposed. The approach, also known as a withhold-vote campaign, is less intrusive that a traditional proxy contest because the activist isn't seeking to bring on its own slate of directors. Nevertheless, it seeks to embarrass a company and its directors enough that it will make major changes.
And embarrass Tempur Sealy is exactly what H Partners did. Opposition to each of the three targeted incumbent directors ranged from nearly 80% to roughly 90%. Tempur Sealy struck a rare post-fight settlement three days after the battle concluded -- the CEO and two targeted directors stepped down, and the mattress company agreed to reimburse H Partners for its campaign costs of up to $1.2 million.
The most significant outcome of the campaign, however was the Securities and Exchange Commission's approval of H Partners' strategy. H Partners, advised by Olshan Frome Wolosky LLP, persuaded the SEC to approve a proxy card for the withhold-vote campaign that was mailed separately from the management proxy card. Typically, the SEC allows for a dissident proxy card only in traditional proxy contests pitting dissident director candidates against incumbent board members.
The SEC's approval of H Partners' proxy card has some proxy solicitors and activist hedge-fund managers predicting more insurgent funds will be encouraged to employ withhold-vote campaigns in the future. According to FactSet Research, there were five activist hedge fund just-vote-no withhold campaigns that concluded in 2015, up from two in 2014 and two in 2013.
Getting a green light from the SEC was critical for H Partners because the dissidents were entitled to obtain preliminary voting tallies from Broadridge Financial Solutions (BR) during the days and weeks leading up to the election. Broadridge is a company that has a near monopoly on distributing proxy materials, including preliminary vote tallies. Broadridge did not return calls.
Starting in 2013, however, the intermediary firm stopped providing the preliminary voting tallies for those kinds of campaigns to dissident investors but continued to provide them confidentially to targeted corporations.
Bruce Goldfarb, CEO of Okapi Partners in New York, said he believes both activist hedge funds and public-pension funds will accept the costs of filing proxy material for their uncontested insurgencies in the right circumstances because they understand that obtaining preliminary vote tallies are critical to a successful campaign. "They may not use it every time. They will assess the cost and effectiveness of it but they will use it," he said.