Although European shareholder activism and engagement is growing across the continent, there is still much to catch up until it’s at the point of of activism in the U.S.
However, according to a European activism report published by Activist Insight, a specialist provider of news and data on shareholder activism, European activism is still rising as more investors are recognizing that a vast majority of the U.S. market is becoming “increasingly picked-over.”
We spoke with Josh Black, the Editor-in-Chief at Activist Insight. Black is also the editor of the special report entitled Activist Investing in Europe. For more information, go to www.activistinsight.com.
Christopher P. Skroupa: You recently released a special report entitled Activist Investing in Europe. What were its findings?
Josh Black: By the end of September, more than 100 Europe-based companies had already been targeted by activist investors in 2017, much faster than in 2015 but slightly slower than last year. In the two months since then, activity looks like it will fall a little short of 2016, but will be pretty elevated compared to past years.
Moreover, non-European activists are starting to show more interest in European stocks. This year, Corvex Management and 40 North Capital teamed up to successfully challenge Swiss chemical giant Clariant’s merger with Huntsman and Third Point made a huge investment in Nestlé, while Elliott Management have become more and more active across the region.
The number of $10 billion and upward market-cap companies targeted hit a peak last year and is high again this year, but Europe’s peripheries are also becoming more attractive; Amber Capital recently launched its first campaign in Greece.
As a result, we think the groundwork has been laid for a sustained level of activism.
Skroupa: Where is most of the activity centered?
Black: The U.K. is still the busiest market and the source of many of the headline-grabbing campaigns, the most recent being the leadership row at the London Stock Exchange Group. ValueAct Capital Partners remain invested in Rolls Royce Holdings and have an influence over what happens to Sky through their investment in Twenty-First Century Fox, while Elliott are keeping the screw tight on BHP. The former first minister of Scotland, Alex Salmond, recently joined an activist campaign, which goes to show how accepted the practice has become.
Outside of the U.K., Germany is a real growth area. A proxy fight and subsequent takeover of Stada put firms on notice there, and another company needed a private placement to win a contest earlier this year. France, Italy and Switzerland are also very busy.
A big theme is M&A. Many jurisdictions allow minority shareholders to blow delisting by controlling shareholders, which can become a useful level to extract value. At this moment, when there is uncertainty and currency volatility, European companies can be opportunist about undertaking transactions but also risk falling victim to bids, so activists have some flexibility and can seek to tip the scales one way or another.
Skroupa: How has this rise in activism been received?
Black: So far there has been no proposal or event that could conclusively “chill” activism in Europe, although there are mixed feelings about recent developments. We recently wrote about a proposal in the Netherlands to give companies more time to respond to bids, which could extend to some activist proposals. A few years ago the French government handed double voting rights to longstanding investors, which was seen as a way to ensure it retained influence at a time when it was divesting stakes in important companies. Some activists with long investment horizons may benefit, but the fast money usually favors activism.
Theresa May’s government in the U.K. started life with a bold agenda of corporate governance reforms that it has somewhat watered down since. None were specifically aimed at activism per se, and some hedge funds bristled at the idea of workers on boards. However, there is some support for tougher engagement by institutional investors and perhaps even a more punitive remuneration framework, which will undoubtedly occupy shareholders and boards.
In the aforementioned London Stock Exchange campaign, the Governor of the Bank of England was even asked to intervene. Quite understandably, he told both sides to get a hold of themselves and work something out. They haven’t yet, but the powers granted to U.K. investors to requisition meetings and nominate directors means the likelihood of a persisting stalemate is reduced.
Skroupa: Do U.S.-style activists need to adopt a different style in Europe?
Black: In some ways, yes. There is less of a celebrity culture around hedge funds in Europe, so proving one’s ideas have credibility can be a longer process. Activists need the support of major institutional investors and can get it in many cases, but grandiose demands and a small stake can be treated with suspicion. In some regions, influence is directly proportional to “skin in the game,” but groups like the Investor Forum in the U.K. can help accelerate this acceptance.
That said, it’s revealing that one of the leading practitioners of “U.S.-style activism” is a British knight, Sir Christopher Hohn. That’s because high-profile campaigns have some merit, especially when companies are at a critical inflection point such as during a leadership change or transaction.
When unions, governments or regulators have influence on corporate decisions, it’s a different story altogether. Either way, it’s a good idea to have a Sherpa and a lawyer on your team.
Josh Black will be a moderator for the panel Why Settle?: Drivers Behind Early Stage Deals Between Boards and Activists at the Shareholder Activism conference on Jan. 25. Activist Insight is a Networking Partner for many of Skytop’s activism related conferences, including our upcoming Shareholder Engagement & Communication in London conference on Feb. 6.