Trump tariffs, economic uncertainty fuel more settlements between CEOs and activists

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Settlements climb amid growing uncertainty over market volatility, tariffs

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Corporations and activists are more eager to find common ground

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New director candidates often bring industry expertise

By Svea Herbst-Bayliss

NEW YORK, April 4 (Reuters) - Shares of Yeti Holdings (YETI) tumbled in December and again in March when President Donald Trump threatened tariffs against China, where the company had some of its biggest factories.

Behind the headlines, Yeti, the Austin, Texas-based maker of $300 coolers and $40 travel mugs, was facing another problem.

Hedge fund Engaged Capital was pushing management to return cash to shareholders, expand into new geographies, and be more transparent with investors, according to people familiar with the talks. Those changes, the hedge fund forecast, could help Yeti shares triple over the next three years.

Facing market volatility and questions over consumer demand, Yeti and Engaged announced a settlement that ended a potentially messy fight and lifted shares nearly 6% that day. Yeti did not respond to requests for comment.

Peace at Yeti is part of a growing trend as corporations and their agitators decide to find common ground amid prospects of a tariff war, mass layoffs at U.S. government agencies and the increasing threat of a recession that is clouding the business outlook and weighing on stock prices, according to nearly a dozen investors, lawyers, bankers and analysts.

Twenty-nine global companies reached settlements in the first quarter, marking a 32% jump from a year ago, according to Barclays (JJCTF).

"If this uncertainty in the markets continues, I suspect there will be more settlements in the months ahead as fewer fights are likely to go to a vote," said Duncan Herrington, a managing partner at consulting firm Jasper Street Partners.

Other recent settlements include cybersecurity company Rapid7 (RPD) which agreed with Jana Partners to add three directors. And consumer health company Kenvue (KVUE), which boasts household brands Band-Aid and Tylenol, settled with Starboard Value.

Corporate chiefs, who just navigated the Covid-19 pandemic, have told bankers and lawyers they need to remove distractions like board fights to concentrate on running their companies.

"Many companies want to take risk off the table so they can focus on their businesses," said Lawrence Elbaum, co-head of law firm Vinson & Elkins' shareholder activism practice. "And activists are suffering as their returns are getting hammered so they also want quick settlements."

To be sure, big board fights are still proceeding at companies including U.S. Steel, Phillips 66 and Autodesk (ADSK), illustrating it is too soon to declare peace all over corporate America. But both sides are showing flexibility and eagerness to settle.

"People are more willing to play ball," Jasper Street's Herrington said.

Activists who once tried to put their founders on boards are now less wedded to scoring a board seat for themselves. On the company side, more boards are more willing to consider candidates proposed by activist investors, especially if they bring deep industry experience, bankers and lawyers said.

Engaged Capital, for example, wanted Yeti to expand its product offerings, people familiar with the selection process said, so it introduced Arne Arens to management. Arens, who has expertise in the clothing sector, is now a director at the company.

Many activists, meanwhile, have seen their positions lose money this year so they are more cautious about pressing on with a costly and uncertain fight.

"You have to do the math and calculate what are my chances to win a fight," said Lyndon Park, who is the head of ICR Shareholder Advisory. "If both sides are willing to agree, then a settlement is not a loss." (Reporting by Svea Herbst-Bayliss; Edited by Dawn Kopecki and Edward Tobin)