What the activism world is talking about
Clariant and Huntsman have dropped their planned merger, after White Tale Holdings – a joint venture from Corvex Management and 40 North Capital – objected. The campaign marked the second foray into Swiss activism for U.S. investors this year, after Third Point Partners took a stake in Nestlé and began agitating for changes. White Tale will likely now seek board seats at Clariant but the saga highlights the difficulties of M&A activism as well as the power of activists. To be effective, White Tale needed to accumulate a 20% stake, perhaps indicating that other shareholders were not willing to offer stiff resolve without protecting their downside. EQT, a U.S. oil and gas company, last week won Institutional Shareholder Services’ support for its merger with Rice Energy despite a spirited campaign by Jana Partners. Earlier this year, AkzoNobel fought off a hostile bid from a U.S. suitor that had the backing of Elliott Management, although the Dutch chemicals company is reportedly now seeking a combination with Axalta.
All three situations required more battling than is usually required to put a company in play, as happened with Whole Foods Market this year, thanks to Amazon’s surprise benevolence. With low-hanging fruit now well-picked, M&A can be a slog for activists. With longer fights, activists might start sharing more of the consequences.
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What we’ll be watching for this week
- Will Pershing Square and Automatic Data Processing find a form of compromise before their showdown next week?
- Will Aristeia Capital cause a surprise upset in its proxy fight at Sina this Friday?
- Will tensions boil over at MusclePharm as rival interests compete at the debt-laden company?
- Will Oasis Capital add to its stake in Alpine Electronics to ensure it doesn’t have a mountain to climb to block the company’s sale to Alps Electric?
Short campaigns often do best at companies with a disparate and actively managed shareholder base, where a dash for the exit can be induced. For its debut, new short seller Batman Research (no affiliation with Gotham City Research) has picked a different class of target. Insider ownership at Care.com, an online marketplace for babysitters, is a handsome 36%, while short interest Monday was just 3% of the company’s float. The activist in this case believes that the largest shareholder, Google’s venture capital arm, may have overlooked weaknesses in the company’s safety checks and that it can motivate other venture capital firms to dash for the exit. Certainly, the stock was down 3.3% at the market close following a strong finish. But for the stock to fall from $15 to $3 or less (the value of the company’s cash), a regulatory or police intervention may be required.
Chart of the week
The percentage of Europe headquartered companies publicly subjected to an activist demand with a market cap of over $2 billion. *
*All figures are as of October 27 2017.
Article by Activist Insight