Shareholder Activism –
The European Dimension
“En Garde”
Selina Sagayam, International Corporate Finance Partner at Gibson Dunn & Crutcher
Amar Madhani, Solicitor at Gibson Dunn & Crutcher
Market Tracker Analysis, written for LexisPSL Corporate
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I. C
apitalism’s unlikely heroes1 … The landscape
In 2014, shareholder activists launched 344 public campaigns globally against companies of all shapes and sizes. For those who
wishfully thought that the media flurry about shareholder activism in Europe was just simply that, they should also note that of the 344
campaigns, almost 30% related to non-US companies2. This data, taken together with FTI Consulting’s estimate that only about 31%
of activists’ dialogues enter the public domain on a global level (with a much lower figure in Europe), sends a clear message to public
companies and their advisers -“stay watchful and be prepared, for the activists are here to stay”.
One of the key macro drivers for the increase in volume of activist campaigns is the greater acceptance of the value that activism
can bring. The “asset strippers” and “locusts” taglines now rarely surface in public debate and analysis on shareholder activism,
replaced instead by data such as that prepared by McKinsey supporting the proposition that shareholders generally benefit from
activist campaigns. Out of 1,400 campaigns launched against US companies in the 10 year period up to 2014, McKinsey3 found that
total shareholder returns increased by 5% in the first year following the campaign and maintained a gain for at least a two year period,
compared to peer companies that had not been subjected to a similar campaign. Although the benefits of activism are certainly by
no means universally accepted, the McKinsey data coupled with Harvard Law School analyses of the neutral to positive stock price
performance of firms for the five years following activism, is now relied upon by many as evidence against the claim that “myopic”
activists pressurise for short term gains at the expense of value in the long run.
With this back drop, it is no surprise then that assets under activists’ management topped US$150 billion in 2014, with US$14billion of
new money having been raised that year. The current wave of activism is driven principally by hedge funds4 and alternative investment
managers – one of more interesting global developments is the increased allocation of monies from a broader range of investor
groups to such activist funds. State pension funds, quasi sovereign wealth funds and more traditional investors (for example, in the
UK, county councils and even the Church of England) are increasingly allocating more monies to investments in activist funds. So who
are the activists and who are the people behind them?
II. T
he “New” Breed of Activists
The table below summarises some of the key activist players in Europe with information on their founders, assets under management
(AUM) and recent global targets. As expected, the majority are US in origin (many traditional players), but with a number of notable
exceptions as highlighted in the table. European activists to note and keep an eye out on include SpringOwl and Sherborne investors.
These funds have been involved in a number of high profile cases including, most recently, Sherborne’s campaign at Electra Private
Equity. Worsley Associates is also another new entrant into the UK activist market with a focus on smaller cap UK targets.
In addition to new participants generally, the other feature that the changing shareholder activism landscape has seen, has been the
involvement of long investors, pacifist funds and institutional investors who historically had steered clear of the “activist” mandate.
Recently, however, we have seen the likes of M&G Recovery Fund participating in activist campaigns. The changing landscape has also
seen the emergence of new entrants even on the US side, for example trained portfolio managers from large funds have launched
their own vehicles such as Sachem Head, Corvex and Marcato Capital Management5. Other new developments include alliances
between institutional investors and mutual funds alongside traditional hedge funds/alternative activist funds. Examples at this end of
the spectrum include T Rowe Price supporting Icahn’s opposition in Dell and Value Act’s campaign in Microsoft, which was reportedly
launched in the knowledge of and with support from some of the largest and oldest investors in that company.
1
The Economist (7 Februairy 2015)
240% of activist funds globally have a European or global investment focus (Preqin Hedge Fund Report, June 2014)
3
Preparing for bigger, bolder shareholder activists (McKinsey, March 2014)
4NB: Even within the hedge fund community, activist funds account for less than 1% (71 out of circa 8,000 funds (Hedge Fund Research (HFR))
5Scott Ferguson, founder of Sachem Head and ‘Mick’ McGuire, founder of Marcato Capital Management, are both ex-Pershing Square. Keith Meister who founded
Corvex used to work at Icahn Associates.
2
Activist
Key Principal(s)/Founder
AUM
Origins
Targets
Audley Capital
Julian Treger
No public
information
London
Anglo Pacific Group, Western Coal,
Walter Energy
Amber Capital
Joseph Oughourlian,
Michael Brogard
US$2bn
New York / Italy
Impregilo, Fondiaria Sai, Parmalat, Save
Breeden
Richard Breeden
US$219m
Oct 2013
Connecticut
Zale Corp
Bristol Capital Advisors
Paul Kessler
No public
information
Los Angeles
Miller Energy Resources, Lion
Biotechnologies, Wizard World Inc.,
Research World Inc.
Cevian Capital
Christer Gardell and Lars
Förberg
€8.5bn
London
ThyssenKrupp, Volvo, G4S, DMAG
Cranes, Bilfinger, Danske Bank
Clinton Group
George E. Hall
US$1.5bn
(Feb 2014)
New York
The Wet Seal Inc, Nutrisystem,
ValueVision, Atlantic Power, Campus
Crest
Coppersmith Capitalz
Jerome Lande
No public
information
New York
ConMed, Alere Inc
New York
Williams Companies, Fidelity National
Financial, Commonwealth REIT,
TW telecom, Signet Jewlers,ADT
Corporation, Ralcorp, AboveNet,
Corrections Corporation of America,
American Realty Capital Properties Inc.
US$5bn
Corvex
Keith Meister
Feb 2014
3
Crystal Amber Asset
Management
Richard Bernstein,
Jonathan Marsh
UK£164.4m (NAV)
Feb 2014
Guernsey
API Group, Sutton Harbour Holdings,
TT Electonics, Leaf Clean Energy,
Thorntons, Aer Lingus Group, NBNK
Investments, Sainsburys
Owl Spring Asset
Management (FKA
Cumberland Associates)
Andrew Wallach, Jason
Ader
US$225m
Oct 2014
New York
Bwin.Party
Davis Selected Advisors
Christopher Davis
US$43.1bn
Oct 2013
New York
American Express, Google, Bank of
New York Mellon
Dialectic
John Fichthorn, Luke
Fichthorn
US$2.03bn
Oct 2013
New York
Immersion Corporation, AT&T,
California Micro Devices Corp
Elliott Management Corp
Paul Elliott Singer
US$32bn
Oct 2013
New York
Juniper Networks, Riverbed
Technology, NetApp, Hess, BMC
Software, Compuware, Brocade
Communications, National Express,
WM Morrison, EMC Corporation, Game
Digital, Prezzo, Hess Corp
Eminence Capital
Ricky Sandler
US$6.61bn
Oct 2013
New York
The Mens Warehouse, eBay, Cognizant
Technology, Zynga Inc, World Wrestling
Entertainment Inc
Engaged Capital
Glenn Welling
US$22bn
Feb 2014
California
Abercrombie & Fitch, Rentech,
Volcano Corp, Silicon Image Inc
Franklin Mutual Advisers
Peter Langerman
US$59bn
Oct 2013
New Jersey
Dell, Tribune Co, Assicurazioni
Generali#, Wyerhaeuser, Songbird
Estates/Canary Wharf Group
Glenhill Capital
Glenn Krevlin
US$1.18bn
Oct 2013
New York
FedEx, Motorola, Starwood Properties,
Sandisk Corp
GVO Investment
Management (formerly
SVG Investment
Managers) – In process
of being acquired by RIT
Capital Partners
Adam Steiner
UK£1.25bn
Jan 2014
London
Aberdeen Asset Management, Wills
Group Holdings, EV2 Technologies plc,
CVS Group, Goals Soccer Centres
Harwood Capital
Christopher Mills
US$974m
Oct 2013
London
Cyprotex, Active Risk Group, Goals
Soccer Centres, Quarto
Activist
Icahn Associates
Carl Icahn
AUM
US$38.6bn
Feb 2014
US$5.46bn
Oct 2013
Origins
Targets
New York
Hologic, Talisman Energy, Dell, Nuance,
Forest Laboratories, Transocean,
Apple, Herbalife, Oshkosh, Enzon
Pharmaceuticals, The Greenbrier
Companies, Netflix, Navistar,
Broadview Networks, Mentor Graphics,
Chesapeake Energy, CVR Energy,
Amylin Pharmaceuticals, Clorox, eBay,
Hertz Global Holdings Inc.
New York
QEP Resources, Outerwall, Safeway,
Oil States, Ashland, Agrium, Marathon
Petroleum, Walgreens Boots Alliance
Inc, Hertz Global Holdings Inc,
Petsmart
Massachusetts
Ithaca Energy, Miranda Technologies
Inc, Synacor Inc
Jana Partners
Barry Rosenstein
JEC Capital Partners
Peter Heiland
JCP Investment
Management
James Pappas
US$18.3m
Oct 2013
Houston
The Pantry Inc, Morgans Food, Samex
Mining Corp, Vicon Industries, AmREIT
Inc
Knight Vinke Asset
Management
Eric Knight
US$1.33bn
Oct 2013
New York
Darty Group (formerly Kesa), UBS
Laxey Partners
Andrew Pegge, Colin
Kingsnorth
US$159m
Oct 2013
Isle of Man
Rangers International Football Club,
Lone Star Value
Management
Jeff Eberwein
US$698m
Dec 2013
Connecticut
The Pantry Inc, Miller Energy
Resources, Rentech, Aviat Networks,
Southwest Securities Inc, Dakota Plains
Holdings Inc, O2 Micro International
Limited
M&G Recovery Fund *
Tom Dobell
UK£7.2bn
Feb 2014
UK
Gulf Keystone Petroleum, Quindell
Odey Asset
Management
Crispin Odey
US$11.1bn
Feb 2014
London
Rockhopper Exploration, Sky
Deutschland
John Paulson
US$27.4bn
Oct 2013
New York
Family Dollar Store, Grifols SA,
Harfords, Deutsche Telekom, Whiting
Petroleum Corp, Time Warner Cable,
Shire, Alibaba, Talisman Energy, T
Mobile US,
Pershing Square
Bill Ackman
US$13.2bn
Oct 2013
New York
J.C. Penney, Air Products, Herbalife,
Procter & Gamble, Canadian Pacific
Railway, Allergan Inc, Zoetis Inc,
Platform Speciality Prooducts
Corporation
Primestone Capital
Frank Falezan, Benoit
Colas, Jean Pierre Millet
US$400-600m
July 2014
London
Newly launched – no information on
Targets available
Relational Investors (In
Run Off as of Oct 2014)
Ralph Whitworth
US$5.3bn
Oct 2013
San Diego
Hologic, Hess, Timken, SPX, Flowserve,
Esterline, PMC-Sierra, Illinois
ToolWorks, Par Pharmaceuticals,
Ingersoll Rand, Hewlett Packard
RWC Partners
Paul Harrison, Nigel Davis,
Philip Harris (UK); Maarten
Wildschut, Petteri Soininen
(EU)
London
Grontmij, Vodafone, Siemens (formerly
Hermes Focus Asset Management)
Paulson & Co
4
Key Principal(s)/Founder
US$6.4bn
Sept 2013
Sandell Asset
Management
Tom Sandell
US$497m
Dec 2013
New York
First Group, Bob Evans, F&C
Management, Transcanada Corp,
Brookdale Senior Living, SemGroup
Corporation, JDS Uniphase
Sherborne Investors
Edward Bramson
US$573m
Oct 2013
New York
3i, F&C Management, Electra Private
Equity
Standard Life
Investments*
Keith Skeoch
UK£184.1bn
Dec 2013
Edinburgh
Essar Energy, RSA Insurance,
Persimmon, Glencore
Activist
Key Principal(s)/Founder
AUM
Origins
Targets
Starboard Value
Jeff Smith
US$2.6bn
Oct 2014
New York
Darden Restaurants, TriQuint
Semiconductor, Smithfield Foods,
Emulex, Office Depot, DSP Corp,
Calgon Carbon, Wausau Paper,
Quantum, Integrated Device
Technology, AOL, Progress Software,
Avid Technology, Tessera, Yahoo!,
Staples
The Children’s
Investment Fund
Chris Hohn
US$6,860mm
London
Airbus Group (formerly EADS),
Newscorp, Royal Mail, Aena, Japan
Tobacco, Coal India
Third Point Partners
Daniel S. Loeb
US$14.5bn
March 2014
New York
Dow Chemical, Sotheby’s, CF
Industries, Sony (Japan), Murphy Oil,
Yahoo!, Hertz Global Holding, Fanuc
Trian Fund Management
Nelson Peltz, Peter May, Ed
Garden
US$5.93bn
Dec 2013
New York
Mondelēz, PepsiCo, Danone (France),
Ingersoll–Rand, BNY Mellon, DuPont
Value Act Capital
Management
Jeff Ubben, Mason Morfit,
George Hamel Jr
US$11bn
Oct 2013
San Francisco
Wills Group Holdings, Microsoft, MSCI,
Halliburton
Viking Global Investors
Andreas Halvorsen
US$28.8bn
July 2014
Connecticut
Porsche SE, Canadian Pacific Railway,
Facebook, Valero Corporation, Alibaba,
Walgreens Boots Alliance, Coca Cola,
Ingersoll-Rand, NXP Semiconductors
West Face Capital
Greg Boland
US$2.5bn
Dec 2013
Toronto
Longreach Oil and Gas, Maple Leaf
Foods, PHI Inc, CHC Group Ltd,
Entravision Communications
Worsley Associates
Blake Nixon, Max Lesser
No public
information. Seeded
by Christopher Mills
London
Small cap UK listed companies
III. Who is under attack? … Prêts
The boom in activism has revealed a number of interesting data points. First, as recent high profile examples prove, size is certainly
no deterrent to a determined activist. Expansion of the capital that activists have accessed has allowed activists to pursue iconic
companies with multi-billion dollar market capitalisations, including global household names such as Apple, PepsiCo, Hertz and
Yahoo!. Secondly, all industry sectors are vulnerable. The energy and resources sector has displayed a significant increase relative
to other sectors in terms of incidents of activism since 2009, but consumer and retail, technology and financial institution sectors
are dominant target sectors also accounting for 23%, 17% and 14% respectively of campaigns6. The natural target for activists will be
companies: (i) that are vulnerable or display vulnerability from a governance perspective, (ii) where there is available cash, (iii) with
debt capacity, (iv) with potential as an acquisition target, and (v) whose relative valuation and stock price performance is below peer
companies and industry averages. In the US, with governance weaknesses such as “poison pills” and staggered boards less prevalent
in listed companies - some say due to activist pressure which in the US started around the 1980s - activists have in their range of view
other governance deficiencies when identifying prime targets.
IV. Activist Strategies & Agendas … Allez!
At the heart of shareholder activism is the hunt for value and, in this quest, activists will employ different strategies. The choice of
strategy at any one time will be impacted by macro-economic factors, the nature of the activist and the jurisdiction in which the
relevant target company is incorporated. The primary range of activist strategies falls into four broad categories:
• Governance changes are often top on the agenda (either employed on its own or in combination with another agenda) including
a push for board representation, replacement of existing board members or senior management and/or changes to their
remuneration package.
6
5
Shark Repellent (2012-2013)
• Balance Sheet strategies have as their focus unlocking shareholder value through return of capital such as buy-backs or dividends,
leveraged recapitalisations, refinancing of debt. Due to rising interest rates, calls for recapitalisations and dividend returns are less
accretive and will not earn the support of long term investors – hence in 2014, balance sheet activism accounted for only 11% of all
activist demands in comparison to 16% in 2013.
• Strategic/Operational “tuning” strategies focus on enhancement of the business mode through for example, general cost cutting,
change in business strategy or focus, change in underlying operational models (e.g. sale and leasebacks).
• Finally, M&A-related strategies employed by some activists encompass sale or bids for a company, business portfolio optimisation
by e.g. spinning off or divesting non-core divisions, undertaking specific acquisitions (which may in part be alternative strategies to
a potential merger or restructuring under consideration by the target company), pushing for a total exit and forcing the company to
put itself up for sale, or, in the case of some activists (e.g. Carl Icahn and Elliott Management) actually undertaking a buy-out of the
target company themselves.
In parallel with these four key objectives, some activists also engage in more speculative strategies such as short-selling7 (seeking to
direct outcomes of current transactions and/or seeking arbitrage opportunities in the market) and engaging in or threatening to take
legal action (in the form of derivative claims, claims for breach of director’s duties or similar) – these types of strategies are more
prevalent by US activists and in respect of US targets.
Of the four primary strategies, governance change merits further consideration. Board changes have long accounted for the majority
share of activist campaigns. In the US in particular, board representation is considered to be a very powerful tool and typically a
‘must’ for settlement of any activist attack. Some of the major activists are willing to put themselves on boards and through this, have
demonstrated that they are not just short-term corporate raiders, but are willing to lock themselves on a longer term basis in order
to turn around the target and unlock value for shareholders more widely. For example, Value Act, a San Francisco based hedge fund,
has served on the board of 37 firms. According to FactSet8, activist campaigns for board seats are at a five year high. Companies are
recognising the importance of this particular strategy including the fact that when activist investors take their board fights to a general
shareholders vote, they win either a partial or outright victory in nearly 60% of the cases. It is no surprise therefore, that the instances
where activists have been granted board seats without even going to a vote increased by 9% in 2014 compared to the figures for
2012 and by 41% when compared to 2011 levels. UK and European companies should keep this backdrop in mind when facing (off) an
activist (see also Section VII below).
V. Recent Examples in Europe
The table below sets out examples of recent activist campaigns in Europe, some of which are ongoing. A few things of note on a
perusal of these campaigns – activism in Europe continues to be dominated by US activists including many well-known names.
However, in addition, there are also other players in the European shareholder activism landscape (see below for a closer look at
active funds in Europe). The nature of the campaigns and strategies utilised cover the whole spectrum of options discussed above
from merger arbitrage to encouraging restructuring and spin offs to board changes. In the UK one of the key developments is that the
campaigns of 2015 feature a number of UK based activists. Finally, the other key point for companies to note is that these campaigns
can run on for a lengthy period of time, sometimes years and one should not underestimate damage that can be done as a result of
management and executive board “distraction” in managing a persistent, belligerent activist.
7Recent examples include: (i) Gotham City Research short positions in Quindell plc; (ii) Pershing Square in Herbalife; and (iii) Greenlight Capital in Moody’s
8
“Activists increasing success gaining board seats at U.S. companies” (FactSet, March 2014)
6
Recent Examples of Activism Involving European Companies
Issuer
“Activist” Shareholder
Activist Agenda/Aim
Outcome
2015
Intercontinental Hotels
Group plc
Marcato Capital Management
Strategic review and consideration of options,
including merger and combination with peer
strategic partner
Ongoing.
Aer Lingus
Crystal Amber
Increase takeover offer Price
Ongoing
Petroceltic
Worldview
Restructure board
Ongoing
Electra Private Equity
Sherborne Investors
Restructure board
Ongoing
2014
Tethys Petroleum
Pope Asset Management
Restructure board
Successful. Four nominees
appointed to board and two
directors resigned.
NBNK Investments
Crystal Amber
Launch legal proceedings against Lloyds Banking
Group plc for TSB sales process
Ongoing
Leaf Clean Energy (UK)
Crystal Amber
Restructure board and adopt restructuring
strategy
Two board members
resigned and Activist’s
nominees appointed
bwin.party digital entertainment (UK)
Cumberland Associates / Owl
Spring Asset Management
Restructuring divestiture of non-core assets
Ongoing. Activist has acquired board seat
F&C Asset Management
(UK)
Elliott Management
Merger arbitrage to increase takeover offer price
Unsuccessful. Takeover
offer price at the original
offer price approved by
shareholders. Takeover
Completed.
WM Morrison (UK)
Elliott Management
Restructure property portfolio to release value
Ongoing
First Group (UK)
Sandell Asset Management
Alternative turnaround plan and restructuring
Ongoing (although Sandell
has reduced its stake)
Essar Energy (UK)
Standard Life
Increase takeover offer price
Takeover completed – price
not increased
Porsche (Germany)
23 Hedge Funds including:
Litigation in connection with attempted takeover
of Volkswagen
Claim for €1.36bn rejected.
Other claims ongoing,
although German Courts
have rejected some of the
other claims also.
Restructuring and divestiture of assets
Issuer agreed to consider
restructuring and divestiture options
- Viking Global Investors
- Glenhill Capital
ThyssenKrupp
Cevian
2013
7
Gulf Keystone Petroleum
M&G Recovery Fund
Restructure board and reduce board remuneration
Issuer reached agreement
with Activist
Hibu
Hibu Shareholders Group
Restructure board and oppose lenders’ restructuring plan
Unsuccessful. Issuer placed
into Administration
Issuer
“Activist” Shareholder
Activist Agenda/Aim
Outcome
Bumi (now Asia Resources Minerals)
Nathaniel Rothschild
Restructure board and alternative group restructuring
Unsuccessful. [NB: Subsequent successes including
original nominees being
appointed to the board
EADS
The Children’s Investment
Fund
Sale of 46% stake in Dassault Aviation to return
value to shareholders
Unsuccessful but Activist
achieved a reported 90%
return on investment
Transocean
Icahn Associates
Increase dividend payout and restructure board
Initially unsuccessful –
other shareholders voted
against proposals. Issuer
reached agreement with
Activist 9 months after
proxy fight
Telecom Italia
Findim Group
Restructure board
First proposal rejected by
shareholders. Activist continuing with Agenda. New
Chairman appointed.
Rangers International F.C.
Laxey Partners
Support existing board
Successful. Ongoing
Celesio
Elliott Management
Merger arbitrage to increase takeover offer price
Successful. Price increased
UBS
Knight Vinke
Disposal of investment banking arm
Ongoing
Kabel Deutschland
Elliott Management
Merger arbitrage to increase takeover offer price
Successful. Price increased
VI. The Riposte - What’s in the toolbox?
In examining the impact of shareholder activist campaigns it is also worth considering what tools and mechanisms activists are
utilizing in their campaigns. One of the trends that has surfaced in recent years is a greater willingness on the part of activists to
engage with boards before launching a full offensive attack. This is particularly prevalent and relevant in a European context where,
primarily for cultural reasons, a more collusive and less aggressive approach has proved to be more successful for activists. Going
public involves considerably more expense and risk (both in execution and reputation). Whilst this has not deterred activists in US
campaigns, many have adopted a more cautious approach or “diversified tone” in their European campaigns for fear of the shutters
being firmly pulled up before they have achieved any meaningful headway and insight into the target. Many of the seasoned activists
(as evident from those who have gone public) undertake a significant amount of preparation and analysis of their target companies.
They employ teams of analysts to undertake thorough research and diligence on the target and analyse its actual and relative
performance against peers. Significant time and resource is deployed in running financial models to support alternative business
strategies and models. Outside advisers (including PR, proxy solicitors and lawyers) are routinely engaged to advise on campaigns – as
the match has become more sophisticated and the level of debate heightened, the quality of preparation has increased. In order to
be able to put on an equivalent counter-riposte, companies need to understand what they are facing and “typically” how an activist
campaign may play out.
First, in order to get a seat at the table, the activist needs to acquire a stake, if it is not already invested in the company. A campaign
will usually start with the building of a relevant stake or increasing an existing stake in order to implement the proposed strategy. The
question arises as to what the minimum stake is and in what form9. There is no magic number in terms of the percentage holding
that a shareholder activist needs to acquire in order to launch an effective campaign. It depends on the company (e.g. for mega
market capitalized companies, a holding of even one percent can draw the attention of the board and other investors) and the plan
to implement the strategy (e.g. is there a plan to requisition a shareholders’ meeting; if so will this be done alone or in conjunction with
other shareholders)10.
9In particular, activists who acquire exposure to target companies in the form of derivatives, may need to convert these holdings into direct holding of securities to
exercise rights which are only afforded to shareholders (whether by operation of law and/or under the company’s governance documents)
10NB: In requisitioning a meeting together with other shareholders, activists in EU incorporated companies in particular, need to be mindful of forming a “concert party”
with other shareholders and the resulting consequences under applicable takeover laws regarding mandatory offers
8
The next element after acquiring a stake is the approach. The activist will consider whether there is any merit in engaging privately
with a target in order to further its objections and aims. In the UK and Europe (and increasingly in many US campaigns), this approach
tends to be favoured, at least in the first instance. If private engagement has failed to achieve the desired results at all or within a
timely framework, the next step is pressing the public “play button”. Many activists claim that the use of media and press campaigns
have significantly contributed to the success of their objectives. This is a critical time for both the activist and target company – as
how this plays out can reveal inherent strengths/ weaknesses on both sides. When the activist goes public the doors are open wide,
the tools that we see used range from publishing open letters to white papers to press releases, TV campaigns and even Twitter. In
conjunction with the launch of a public campaign the activist will start gauging the sentiment of other shareholders and indeed seeking
potential support. This may take the form of indications of soft support or if possible gathering commitments in the form of letters
of intent or voting undertakings which may be relevant to the context of the requisitioning of meetings. The activist will want to utilize
its shareholding in an effective way. It will use its holding to exercise rights of inspection of the shareholder’s register, requisition a
resolution at the annual general meeting or even call or convene a special meeting to consider resolutions to further its objectives.
In addition, certain shareholding sizes can give the activist a right to require circularization of statement and require an independent
scrutiny of or poll vote at special meetings, which it has requisitioned.
Alongside shareholder support, it will be important, particularly in the context of US public company campaigns, to garner the support
of the likes of ISS and Glass Lewis11, as the views of these firms are key in determining the manner in which many institutional investors
will eventually vote at a shareholders’ meeting.
VII. The Counter-Riposte ….What Can and Should Target
Companies Be Doing?
So what can public companies do when the activist starts knocking at their door? The first thing is that companies need to start
being proactive in their consideration of how to fend off a possible activist campaign and not wait for the knock on the door. In the
US, activism is “mainstream” and combating a potential attack by an activist shareholder has been elevated to the top of many
board agendas. This has yet to feature significantly on UK and European boards but it is advisable that they start reconsidering
their approach. If a company finds itself in reactive mode, the first thing to do is to formulate an overall strategy – should a firm and
“technical” response be adopted or should (a least an appearance) an open and listening approach be rolled out?
• Emergency Drills: Best practice would be to run mock sessions as some public companies already do in the context of possible
hostile takeovers.
• Regulatory and Legal Compliance: Companies need to be prepared to be able to respond effectively when faced with a request
for an inspection of their shareholders’ register and to be able to promptly test the validity of a requisition to convene a shareholder
meeting. Have the constitutional documents been complied with? Does the person who has submitted the requisition and/or
the request to inspect the register actually have the right to do so? Do they have the requisite number of relevant interests in the
Company? Has the request been submitted by the correct party? 12 Even if the Company chooses not to take these points with the
activist, it is essential to know if and when it has the right to reject a flawed notice of requisition, request for inspection or similar.
• Collusive Action: Other defensive tactics the company can take is to scrutinize the actions of the shareholder activist and any
alleged “supporters.” What is their aggregate shareholding? Is there any issue with regards to possible concert parties, and breach
of any applicable mandatory bid thresholds?
• Identifying Beneficial Owners/Disclosures: Has the activist complied with the relevant disclosure and transparency rules regarding
public disclosure of major shareholdings13? Does the Company know who the beneficial holders of the relevant interests are? If
necessary, consider using rights under law or governance documents to answer written questions about the nature of an “interest”
in the Company’s shares14.
These, however, are examples of defensive action which often reveal or are portrayed by the activist as shielding a fundamental
weakness in the Company and its management. Companies should consider adopting a more proactive approach in the wake of
possible activist actions. In addition to drills, consideration should be given as to whether or not there are “easy wins” and/or obvious
gaps and areas of governance weakness which can be rectified on a preemptive basis.
11NB: In the UK the impact of such proxy advisers is less significant - long investors do consider their recommendations but typically only on a case by case basis.
12NB: One of the common mistakes that requistionists often fall prey to is errors in identifying who are the relevant registered shareholders who have the right to
requisition a meeting. This is often the case with funds where shareholding can be held across a number of different nominee and partnership structures.
13See Disclosure and Transparency Rules (DTR) 5 and Rule 17 (AIM Rules) for UK main market and AIM companies
14See section 793 Companies Act 2006 for information rights of UK public companies
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• Self-Analysis: For example, review dividend policy and the ability to return capital to shareholders; should the board composition
be refreshed; is remuneration policy and executive pay in line with best market practice and institutional guidance? Alongside
substantive actions, companies should also consider other tactics including keeping a proactive eye on who’s on their register.
• Effective Stewardship – Know Who is On Your Register: One of the key things companies need to do is simply just listen - maintain
a close watch and ear to the ground in terms of shareholder sentiment. The UK Stewardship Code encourages regular and effective
engagement with shareholders - this is not only simply good governance but can be a particularly helpful tool if a company has
maintained good and strong relationships with its shareholders, for example institutional shareholders - they can be powerful allies
(or major obstacles) in the wake of an activist attack.
And … if the activist does come knocking on the door … take the call, take the meeting … listen. Be prepared to be surprised - activists
often have much to add, particularly those who have done their “homework” and given hard thought about how to unlock value in
the Company. If board change is on the agenda – consider offering a seat to the activist; the quality of candidates put forward have
significantly increased and often if they are willing to take a seat themselves, the company may find itself the beneficiary of a “lockedup” activist with substantive value to add to the board. If carefully and effectively corralled, activists can be put to good use in the
company - a company can avoid an ugly public fight, maintain stability in management and in the business and hopefully improve
performance in the company … a win-win situation for all perhaps?
Selina Sagayam,
International Corporate Finance
Partner at Gibson Dunn & Crutcher
Selina Sagayam is an English qualified
partner in the London office of Gibson,
Dunn & Crutcher and a member of the
firm’s international Mergers and Acquisitions, Capital Markets and
Securities Regulation and Corporate Governance Practice Group.
Ms. Sagayam is regarded as one of the leading public M&A
advisers in the UK and has advised on hostile, competitive
and recommended takeovers. She has extensive experience
in the City Code governing public takeovers in the UK and the
European Takeovers Directive. She was seconded for two years
to the Panel on Takeovers and Mergers, the key regulatory body
governing public company acquisitions in the UK, and is now
regularly called upon as key adviser and commentator on UK and
European takeovers.
Ms. Sagayam’s practice is focused on international corporate
finance transactional work, including public and private M&A,
joint ventures, international equity capital markets offerings and
advisory work focused on corporate governance, shareholder
activism and securities law advice.
Ms. Sagayam is also noted for her expertise in financial
services and regulatory advice. She advises boards and
senior management of international corporations, exchanges,
regulators, investment banks, and financial sponsors (private
equity and hedge funds) on such issues.
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Amar Madhani,
Solicitor at Gibson Dunn & Crutcher
Amar K. Madhani is an English law qualified
solicitor in the London office of Gibson,
Dunn & Crutcher.
Mr. Madhani’s practice focuses on general
corporate and corporate finance transactions, including
domestic and international mergers and acquisitions, joint
ventures, private equity, venture capital and equity capital
markets transactions. He regularly represents public and private
buyers and targets in auctions, asset sales and mergers across a
broad range of sectors including financial institutions, energy and
infrastructure, and TMT.
Mr. Madhani’s capital markets experience includes advising public
and private companies and investment banks in matters involving
equity securities in connection with public offerings on the
London Stock Exchange. In addition, Mr. Madhani advises clients
on general corporate matters, corporate governance issues and
London Stock Exchange listing obligations.
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