Imation Corp.: An Activist Proxy Battle (a)

Abstract

The A case in this series takes the viewpoint of a senior portfolio manager who has to decide how to vote the shares held by Wells Fargo Asset Management: she can vote for the current board members of Imation Corp. (IMN) or for the nominees put forward by an activist hedge fund. The hedge fund sent an open letter to IMN shareholders seeking support to replace the key members of IMN's board, as the first step in pushing through sweeping changes in compensation and strategy at IMN. The case illustrates the power of an activist investor to change the governance and strategy of a company. The B case reveals that the activist's nominees were elected, and a series of decisions ensued that dismantled IMN. The case presents students with ethical questions regarding the treatment of IMN shareholders; it also highlights the influence of proxy advisers in a proxy vote. The case has been taught in an MBA corporate finance elective as the second class in activism, following another activist case, Genzyme and Relational Investors: Science and Business Collide? (UVA-F-1660). It can be taught to all undergraduate and graduate levels of business students, as well as seasoned executives. Excerpt UVA-F-1841 Rev. Dec. 18, 2018 Imation Corp.: An Activist Proxy Battle (A) On May 10, 2015, Avery Yin, a senior portfolio manager at Wells Fargo Asset Management, was in the process of reviewing Wells Fargo's positions in Imation Corp. (IMN) across a number of its mutual funds. In April 2015, the Clinton Group, Inc. (CG), a New York City–based hedge fund with more than $ 1.5billion in assets under management, sent an open letter to shareholders seeking support to elect its slate of nominees to IMN's six-person, staggered board. CG's candidates would replace the three incumbent board members who were up for reelection: L. White Matthews (chairman), Mark Lucas (CEO), and David Stevens (director) (see Exhibit1). Replacing half of the board with its own appointees would be CG's first step in pushing through sweeping compensation and strategic changes in the company. Wells Fargo owned 10.2% of IMN's stock across a number of its funds and had been a loyal supporter of Lucas since he had taken over as CEO in 2010. Thus Yin found herself an important player in the battle for control of IMN. A shareholder, or “proxy,” vote would determine whether the current IMN board and management would continue to run the company or CG would pursue its strategy after replacing Matthews, Lucas, and Stevens with its own board candidates. When Yin considered that IMN's performance history had led to a stock price decline of 63% for the period 2010–14 (see Exhibit2), she was not surprised that an activist investor such as CG had emerged. Yin's decision would not be straightforward. On the one hand, she respected Lucas and had consistently supported him and his turnaround strategy. On the other hand, IMN's poor stock performance made her question how much longer she could support Lucas without a backlash from her superiors and from Wells Fargo's mutual fund investors. Her conversations with CG had revealed that it had some valid concerns, but she was hesitant to pledge her outright support to CG given its limited track record in activist investing and the fund's small stake of approximately 3% of IMN's outstanding shares. . . .