On Monday, Activist Insight will be launching the third edition of its Activist Investing in Europe special report, once again produced in association with the law firm Skadden. I’ll save the findings for once the report is public, but given our focus on Germany in Activist Insight Monthly, it might be worth explaining a little bit about why we have given such prominence to the topic.
Not so long ago, activism in Germany was considered almost a non-starter. Like Japan, a corporatist and consensus-driven business culture, an aversion to hedge funds, and legal structures designed to protect companies from feeling too much impact from external forces were seen as almost impenetrable defenses.
True, activism is not new in Germany. Deutsche Boerse had been a target for The Children’s Investment Fund in the mid-2000s. But starting in 2013, several factors began to propel activism forward. The eurozone stabilized and Germany’s economic influence became obvious. U.S. funds Kerrisdale Capital and Elliott Management tried their hand. According to a blogpost from proxy voting adviser Glass Lewis, nonbinding shareholder proposals forced resignations at ThyssenKrupp and GSW Immobilien, two big companies, a year after similar efforts elsewhere had made little impact. “The stories demonstrate that institutional shareholders, even when wielding just a small fraction of a company’s total share capital, can sway a huge portion of shares against management even in Germany, where such action has been rare in the past,” Glass Lewis wrote.
Today, activists are buoyed by a rising market, with the DAX surpassing its 2015 peak earlier this year, and greater ownership of German companies by U.S. and U.K. investors. Last year, Active Ownership Capital (AOC) was partly successful in a proxy fight at Stada, opening the way for a takeover bid and follow-on campaign by Elliott Management this year. Indeed, 2017 could see a record number of companies targeted, if just one more campaign is announced in the next two months. Specialists like AOC and Petrus Advisers are likely to ensure the pressure will be maintained.
Even so, relatively few campaigns see a definitive breakthrough. The jury is still out on whether Cevian targets ThyssenKrupp and Bilfinger Berger can be transformed, while Nijaz Hastor lost a proxy contest at Grammer, and Volkswagen’s supervisory board was comfortably discharged from liability despite a campaign by Hermes (though 20% of shareholders voted against the carmakers’ executive compensation).
Without wanting to give too much away that our subscribers can read about in Activist Insight Monthly or on our database, there are plenty of ongoing campaigns that could swing the pendulum back the other way. Activism in Germany still lags behind the U.K. but has long been the second busiest jurisdiction in Europe. It might be time to recognize its significance.
Bill Ackman wants us to believe that Automatic Data Processing’s threat to report him to the Securities and Exchange Commission for “false and misleading statements” is “a move designed to smear [his] reputation for a tactical advantage in a proxy contest,” but that his own complaint to Institutional Shareholder Services (ISS) that the company used non-public information to sway a recommendation in the proxy fight is significant. “This is the first time in our experience that ISS’s approach has varied from its established precedent and rules of engagement where we were not offered the opportunity to address new facts or issues raised by the subject company subsequent to our meeting with ISS in the midst of a proxy contest,” he wrote in a letter to Cristiano Guerra, the head of contested situations at the proxy adviser, who is in his first year leading the team.
Ackman’s allegation is that the company misled ISS by convincing the proxy adviser to focus on inappropriate metrics, hiding the loss of some customers and promising new products were almost ready to go to market. “An ISS report is not the best place to make a product launch announcement,” he warned the ADP board.
ISS is sticking to its guns and recommending a withhold vote for one ADP nominee to create an opening for Ackman’s election to the board, issuing the following statement: “ISS’ long-standing policy is to not elicit, receive, or use non-public information in its research. That process was followed with respect to the pending ADP proxy contest as affirmed by ADP in their October 31 statement on this matter filed with the SEC. ISS has carefully reviewed the arguments made by Pershing Square in their October 30 letter to ISS and continues to stand by the analysis and conclusions set forth in our October 25 report issued to clients.”
It’s hard to see how the report can decisively influence the election, given the recommendation, but with just the weekend to go it is clear each side will pull out all the stops.
Quote of the week
Quote of the week comes from a peculiar campaign at the U.K. newspaper group Johnston Press, which took an even stranger turn Thursday when the former first minister of Scotland, Alex Salmond, joined largest shareholder Christen Ager-Hanssen and former Evening Standard group CEO Steve Auckland as a supporter, leading to this Braveheart-esque rallying cry from Ager-Hanssen:
“I think many of my fellow shareholders would see a proposed new direction led by Alex and Steve Auckland as fundamentally attractive in restoring the fortunes of the company. We will inspire Johnston Press from this slough of despond to become the most respected newspaper group in these islands.“
Article by Activist Insight
