Whether U.S. activists continue to be active participants in European markets is one of the questions deserving of greater scrutiny beyond our recent report, Activist Investing in Europe 2019.
Of the 117 Europe-based companies publicly subjected to activist demands at the end of the third quarter, 20 were the targets of U.S. funds.
So far, that momentum has not slowed. In November, as many companies were subjected to public demands by U.S. investors (five) as in the previous three months.
Despite reasons for caution – political instability in Italy, a U.K. general election next week that poses a choice between a Conservative “hard” Brexit and an increasingly dirigiste Labour Party, or a French state intent on making life harder for activists – interest in the continent has held up. Indeed, this has been a year in which Trian Partners, ValueAct Capital Partners, Elliott Management, and Third Point Partners – household names all of them – each made a major activist investment or advanced public demands at a European company. Talk of another big situation to come is rife in London.
Neither is the current crop of activism focused exclusively on opportunistic arbitrage plays of the kind that have long been evident in Europe. Of course, opposition to M&A is plentiful: Inmarsat and Altran are two recent high-profile examples. But activists are also taking board seats and pushing for structural changes, especially at companies whose operations span continents or who are insulated from international pressures. Usman Nabi, formerly of H Partners, was recently appointed to the board of Domino’s Pizza’s U.K. arm, the quintessential home comfort.
Settlement agreements of the kind pioneered in Europe by ValueAct at Rolls-Royce Holdings (where the fund is still invested four years later) have helped both sides gain comfort – just one of the many innovations that activists have brought from the U.S. White papers and digital communication methods are following.
Not all U.S. activism in Europe has been as confrontational as those skeptical of Anglo-Saxon hedge funds might expect. Of the record 17 proxy contests fought in Europe’s big five markets this year, only three have been led by U.S. firms. One, at XPO Logistics (Europe), was a dead rubber from the start.
As long as U.S. valuations stay high and Japan appears intent on hampering foreign investment in its firms – as evidenced by the recent Foreign Exchange and Foreign Trade Act, and GPIF decision to halt lending stocks to short sellers – Europe looks like a sensible place to do business. Indeed, resolutions to long-running situations at XPO, Uniper, and Ansaldo STS show that management teams may want to move quickly to squeeze holdouts. Pressure in some countries to change rules to make it easier for acquirers to do so could give activists an incentive to settle.
For now, the balance appears to be perfectly suited to activism. But the already low numbers of campaigns in France are a reminder that activism could quickly move elsewhere and that is no less true for Europe as a whole.
Instructure resisted an activist campaign from Praesidium Investment Management for most of 2019 but a promise to review strategic alternatives for its Bridge employee development platform in October hastened shareholder pressure. Sachem Head Capital Management and Praesidium began pushing for a sale of the whole business, which Instructure announced on Wednesday. The $47.60 per share cash deal with private equity firm Thoma Bravo was well below the market’s expectations, which had recently priced the stock around $53, although Instructure said it was 18% above a three-month average ending in October when it said it would consider alternatives for Bridge.
Now, Rivulet Capital says it will oppose the deal, arguing that “it is [not] in the best interest of shareholders (1) to run a rushed, 3-week strategic alternatives process over the Thanksgiving holiday, and (2) to provide for only a 35-day “go shop” period encompassing both the Christmas and New Year’s holidays.” Oscar Schafer, Joshua Kuntz, and Barry Lebovits’ firm has not filed a Schedule 13D since its founding in 2013. Now, it may start a chain reaction among shareholders.
Quote of the week comes from one of the latest U.S. activists to take a campaign to Europe, and one of the recent proliferation of special meeting demands. Luminus Management wants to replace board members at Valaris (formerly EnscoRowan) and the armaments on both sides have been impressive – Valaris has three banks and three law firms, while Luminus has recruited Innisfree and Schulte Roth & Zabel. This week, Luminus argued time had run out for the offshore driller’s directors:
“The board has—on at least four separate occasions over a span of three years—fought input and objections from four separate, large and sophisticated investors. In the two prior situations with measurable outcomes, the shareholder turned out to be right and the unanimous Board decisions destroyed substantial value. Even more shocking, despite all these failures and a shameful history of antipathy towards shareholders, the board is yet again choosing to spend money and distract leadership in order to fight its largest shareholder.” [Emphasis in the original.]