We spoke with Aneliya S. Crawford, a partner in the Shareholder Activism and M&A and Securities Groups at Schulte Roth & Zabel, widely regarded as the dominant global law firm for shareholder activism and activist investing. As such, Crawford advises some of the most active and influential activist investors in the space.
Crawford brings to each matter vast experience. Serving activists, “occasional” activists, investment advisers, investment bankers and issuers, she provides cutting-edge advice on navigating a maze of applicable laws.
Christopher P. Skroupa: How are current trends shaping the market, and how are they shaping activism?
Aneliya S. Crawford: Activism is deeply ingrained in our lives and has profound impact across a wide range of industries and markets. One of the most important trends that we have seen in the market is that activists are finding more shareholders sympathetic to their cause. Shareholders have begun to seriously listen to activist proposals and engage in discussions with management on their own accord. This is partially a result of activists shining a light on governance practices that have been detrimental to shareholders, including exuberant management pay, entrenched boards, dual class share structures and most recently ESG (environmental, social and governance).
Activist campaigns have also become more complex in issues requiring a broad range of expertise in different areas. From tax and antitrust regulations, to bank regulation and bankruptcy, to fund structuring and litigation strategies, over 100 of our lawyers worked on activist situations in 2017.
Of course the spread of activism globally, particularly the uptick in Europe, means that there has been more cross-pollination of ideas and strategies between U.S. activists and European and other activists.
Skroupa: When we last spoke, we discussed activists’ interests returning to large-caps. Has this trend continued?
Crawford: The return to large-cap targets has continued and shows no signs of receding. In 2017, more than 21 percent of all campaigns were dedicated towards large-cap companies, compared to approximately 19 percent in 2016 according to data from Activist Insight. Of course, we saw the largest campaign in history at Procter & Gamble last year, which ended with our client, Trian, achieving its goals, the culmination of a lengthy and acrimonious fight. In today’s market, no company is too big to be immune from activism. The premier activist funds are continuing to grow their assets under management, many activists saw stronger returns in 2017 and the challenges of targeting a mega-cap or crossing the border for the right opportunity are fading away. Additionally, the change in sentiment regarding activists and the emphasis on corporate governance has increased the willingness of institutional investors to side with activists. Emboldened, well-capitalized activist investors enjoying stronger relationships with institutions are likely to target large companies and to broaden their horizons abroad.
Skroupa: Where do you see activist interests heading in 2018, and to what extent will they continue to be interested in U.K. and the rest of Europe?
Crawford: The perception of activism and the effectiveness of activism have improved across the globe. As activist funds have achieved success in the United States, they have begun to see the European economy as fertile ground to launch campaigns. While traditionally, it seemed that mostly European activists were successful in engaging with European companies, U.S.-based activists are now achieving favorable results using their own strategies. One high-profile example of a U.S. activist seeing success in the European markets is Elliott Advisors’ campaign and eventual truce with AkzoNobel. Similarly, Corvex Management’s position in the food company Danone and Third Point’s continued engagement with Nestlé, show that activists are positioned for success in other public activist campaigns across the continent.
U.K. campaigns, while numerous, seemed quieter last year. Yet some activists, notably Elliott Management, have been very successful with a more assertive campaign style, including at London-listed, Australia-based miner BHP.
We are seeing a noticeable increase in interest by U.S. hedge funds in U.K. investments. Brexit has not dampened activists’ ambitions, and interest in the U.K. remains to be seen whether or how many of these situations that we are seeing brewing will develop into public campaigns and would result in significant changes.
Skroupa: In conclusion, which factors would you highlight as key components to assist corporate executives for following trends in activist interest?
Crawford: Corporate executives should be aware that the tide has turned regarding corporate governance practices. The increasing number of educated investors has led to shareholders engaging with management and driving governance changes. Even if institutional investors are not campaigning for improvements on their own, or in tandem with activists like the recent joint pronouncement from JANA Partners and CalSTRS at Apple, they have become more sympathetic to activists triumphing shareholder rights and demanding improved engagement with companies.
To succeed in this changing environment, corporate executives are advised to consider activists’ suggestions. In particular, the management of companies that have fallen behind their peers in market value should weigh activist business proposals and corporate governance recommendations. Engaging in a discussion with shareholders over the direction of business could secure shareholder confidence in management and potentially lead to increased shareholder value.
In other words, the best way for executives to gauge trends in activist interest and activist behavior is to engage with shareholders and not only the large institutional holders at the top of their share register but activists as well.
Aneliya Crawford will be a panelist for the discussion U.S. Activists: How They are Targeting U.K. Companies at the Shareholder Engagement and Communication Conference in London on February 6, 2018.