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Activist Campaigns In South Korea, Japan And France

Picking a country of the year for shareholder activism and corporate governance was hard enough before COVID-19. Now, it almost seems like a competition for which markets have backslid the least.

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Q3 2020 hedge fund letters, conferences and more

According to Activist Insight Online, seven of the 10 busiest markets for activism saw fewer companies experience public activist demands during 2020 (the three exceptions were Sweden, Singapore, and France). Support for shareholder proposals worldwide fell for each of the five largest asset managers, according to Proxy Insight.

Activist Campaigns In Japan

On a country-specific level too, many governments turned protectionist, reversing a fairly benevolent recent trend in favor of expanding shareholder rights. The U.S. Securities and Exchange Commission (SEC) famously introduced new restrictions on shareholder proposals and proxy voting advisers, judging that the interests of many small investors was best preserved by restricting the privileges of individual ones. In Japan, the country’s biggest domestic activist, Effissimo Capital, is seeking independent oversight of an investigation into government interference in its proxy fight at Toshiba.

Both countries would otherwise make strong candidates for country of the year. In the U.S., activists won a number of proxy fights for board control, including at USA Technologies, GCP Applied Technologies, and Mack-Cali Realty. A strong second half of the year looks set to make up for some of the missing campaigns from the first, and litigation over poison pills may arrest the slide toward lower thresholds for Schedule 13D filers.

In Japan, overall activist activity almost kept pace with recent years, which is no mean feat, and Oasis Management had some successes at Sun and Tokyo Dome. But victories were fewer than in past years, as we noted in our November magazine cover feature, and while ValueAct Capital continued to build on its Olympus campaign by reportedly building a large stake in Nintendo, it did not advance public demands. In fact, many Japanese large caps had a pretty quiet year, with the exception of Mizuho Financial, which fought off the country’s first significant climate change shareholder proposal with 34% opposition. Until the Toshiba situation is resolved, there might be a cloud over activism in Japan in 2021.

Activist Campaigns In France

Another contender for country of the year that had strong backers within Activist Insight was France, where Amber Capital kept Lagardère Group under pressure all year long, and activists won their first proxy fight in years at Unibail-Rodamco-Westfield. In May, market regulator Autorité des marchés financiers (AMF) issued a report on shareholder activism that suggested a degree of acceptance for activism, albeit less so for merger-arbitrage.

On the other hand, the French establishment rallied behind Lagardère, at least in the face of imminent danger, and handed Elliott Management a fine over its investment in XPO Logistics Europe. Moreover, former Unibail CEO Leon Bressler hardly counts as a regular activist. Two company advisers I emailed with this week cast doubt on the prospect of real change in France.

My inclination is to pick a country that almost no-one has talked about this year. Indeed, Activist Insight Online adjudges that not one activist demand was even partially successful this year, and only 11% of public demands since 2014 were at least partially successful.

Activist Campaigns In South Korea

But things are looking up in South Korea. A U.S. hedge fund, Whitebox Advisors, launched a activist campaign earlier this week at LG, the country’s fourth-largest chaebol. It is said to be considering taking its case to the courts, which would be a vote of confidence. Indeed, this year South Korea finally dropped its four-year investigation into Elliott’s activist campaign at Samsung C&T – perhaps too little, too late but a necessary step following a scandal that brought down the previous president in 2017.

South Korea has long caused activists to complain about its companies’ corporate governance discount but it now has a government committed to reining in its largest companies, with President Moon Jae-in appointing "chaebol sniper" Kim Sang-jo to a senior post in his administration and this year bringing forward legislation that would reportedly tighten auditor requirements, limit the power of family voting blocs, and reduce the period investors must hold shares from six months to zero.

This year’s test case was an inauspicious one, given the impact of COVID-19 on airlines. Even so, both Hanjin Transportation and Hanjin KAL, its parent company, faced activist campaigns this year. Some international investors lodged protest votes, including BlackRock and Norges at the parent, and both campaigns look likely to continue into next year.

A wildcard is the role of the National Pension Service (NPS), a major holder of domestic equities. Despite noise about the NPS supposedly taking a more active role in stewardship matters (as is perennially the case with Japan’s GPIF), activists can probably expect the fund to defer to management.

Nonetheless, with the corporate governance reform at a tipping point, it is worth highlighting the promise of President Moon’s platform. An activist would probably need a stronger stomach to invest a billion dollars in a chaebol than in France, Japan, or the U.S., especially with the ability to be on the ground limited by the pandemic. But corporate agitators are contrarians at heart, and contrarians are nothing if not optimists.


WaterMill Asset Management Wins Its Proxy Contest At Ziopharm Oncology

Robert Postma’s WaterMill Asset Management won its debut proxy contest – a consent solicitation, to be precise – at Ziopharm Oncology. The activist will get at least two seats and hopes Postma can also be appointed as a director, despite a cap on the size of the board. The campaign caps a turbulent year for Ziopharm, where three directors received more than 50% votes withheld in June, and four new board members were appointed in September. The activist will now push a value-creation plan that includes big expense reductions, licensing partnerships, and compensation reforms.


Quote Of The Week

Quote of the week comes from Gianluca Ferrari in my colleague Iuri Struta’s in-depth story on the opportunity activists see in launching environmental, social, and governance (ESG) impact funds. Ferrari’s Clearway Capital is the third ESG-flavored activist fund to launch this year and the first in Europe.

"There is so much low-hanging fruit out there. We can find companies with strong business models and a low financial risk profile that are undervalued by the markets primarily because they are not taking sustainability as seriously as they should be," Ferrari said, referring to European small- and mid-cap companies.

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