This week we published our latest special report, Activist Investing in Europe 2019, featuring a comprehensive look at the action with activism in Europe up to the end of the third quarter.
Although the number of companies publicly subjected to activist demands was down as a whole, this belies some key themes.
First, a number of campaigns continued from previous years, including 2018’s record-breaking haul. Some, such as ThyssenKrupp, Telecom Italia, and XPO Logistics (Europe), look like they could continue for a long time yet. Others, such as Fortum and Ansaldo STS, were finally brought to a conclusion. Both long-term operational and event-driven projects are now part of a diverse mix that has made activism in Europe more dynamic and sophisticated.
Second, key markets such as Germany, the U.K., and France held up. Indeed, France is on course to meet or exceed recent record volumes, while Britain has been supercharged by the disruption of Brexit and the consequent dislocation of the pound. The five countries covered in depth by the report would likely have exceeded previous records if taken as a group, had Italian campaigns not dried up in the face of political uncertainty.
Third, proxy contests going all the way to a vote have already matched 2016's full-year peak (since at least 2013). Driven by a hectic nine months in the U.K., activists are showing signs of impatience that belie the traditional advice to show more deference to incumbent boards. Barclays and FirstGroup were notable examples of such battles driving change, if not delivering board seats.
Investor campaigns across the continent
Fourth, activism has spread dramatically beyond local players. Campaigns by ex-founders such as Julian Dunkerton at Superdry are a prominent example, while activism by U.S. participants remained at elevated levels after a big spike in 2018. In perhaps the defining example, the uncharacteristic campaign by a group of institutional investors led by Comgest and PhiTrust to place two nominees on the board of EssilorLuxottica turned out to be a gateway for the involvement of Third Point Partners.
To some extent, 2019 has been the year the gloves came off as activists became more comfortable operating within the cultural and legal nuances of European markets. M&A activity – or the expectation of it – was a key catalyst. Activist opposition to deals exceeded recent averages, while a trio of well-publicized demands for transactions at Panalpina World Transport, Just Eat, and Merlin Entertainments showed that even experienced activists do not feel obliged to grit their teeth in public.
Other campaigns were more collegiate, however. Elliott Management disclosed a position in Germany’s SAP and congratulated management on recent decisions. Hudson Executive Capital has not expressed dissatisfaction with Deutsche Bank, although Cerberus Capital seems to be less patient.
In the past few weeks, the Sohn Foundation’s London conference set a stage for activists while new campaigns have continued to percolate. Small wonder that Armand Grumberg, head of European M&A at Skadden – our lead sponsors on this report – said in a statement accompanying the launch that "2019 may be considered as the year of maturity for shareholder activism in Europe."
Activism in Europe and beyond
Hudson’s Bay Company is intent on pushing ahead with a shareholder vote on its management buyout on December 17, putting pressure on activists hoping to block the deal. Richard Baker, Hudson’s chairman whose group owns 57% of the stock, is offering CA$10.30 for the shares he doesn’t already own. Activists from Land & Buildings to Sandpiper Group and The Catalyst Capital Management believe there are enough votes to block the deal under Canada’s requirements for an affirmative vote of a majority of the minority shareholders. Indeed, they say 28% of the stock is held by opponents of the take-private.
Yet the activists need to win one argument and overcome two pressure points to win the day next month. The argument they are most focused on is the valuation of the retailer’s real estate, which the company puts at CA$8.75 per diluted share and is doubling down on, as evidenced by the 79 appraisals it published this week. Moreover, Hudson’s bolstered its argument in its proxy circular by saying that selling real estate would worsen its cash flow and thereby weaken the business further, as well as creating tax liabilities.
The first pressure is time; Catalyst is reportedly seeking financing for a rival bid but has less than a month to raise commitments for around CA$2 billion. The second, related pressure is the lack of conviction in the marketplace. Hudson’s is trading below Baker’s offer – around CA$9.30 at Thursday’s close. The next few weeks will either see a major escalation, or a capitulation on the part of either the activists or the Baker group.
Quote of the week comes from Carl Icahn’s Wall Street Journal op-ed in defense of the proxy voting advisers. Imploring the Securities and Exchange Commission (SEC) to rethink its planned rule changes, Icahn called on an administration he was once a part of to consider its legacy:
"For the first time in modern history the SEC is making it harder to be a shareholder. That would be an unfortunate legacy in an administration that has prioritized reducing burdensome regulations."