activist defense strategy - … 24, 2017 · sarah krouse, david benoit and tom mcginty 25 october...
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V1DIS
A COMPUTERSHARE COMPANY
Activist Defense Strategy
Cas Sydorowitz – CEO, Georgeson Corporate AdvisoryChristof Schwab – Director Business Development
- Computershare
24 January 2017
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. Q&A
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We believe that an activist approach requires considered engagement. Activists expect a dialogue not a monologue.
› Shareholder activists come well prepared to express a view on European Companies
› Often this is not just about M&A, but instead focused on specific issues that they perceive influence shareholder value
› Directors as stewards of companies, have a fiduciary responsibility to consider the interests of shareholders. This requires considered engagement not instant defense
› Our objectives through this presentation are to better inform you on:
› Why activists are targeting European listed companies;
› What activists look for; and,
› What you need to do to prepare for, and in, an activist situation
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What do they typically want?
Seat on board/nominate seat on board
Change in Governance If the activist
doesn’t like compensation, he doesn’t like the management
Change of Management/ Compensation Usually through
share buy-backs or sometimes special dividends
Return of Capital
Sale/spin-off of a division
Change in Strategy
Merger or Sale of company
Governance-related campaigns are usually “Trojan Horses” to advance some other motive
Why is Governance always used as part of the activist campaign
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Shareholder activism in Europe is still on the rise
39 38
62 63
50
69
83
0
10
20
30
40
50
60
70
80
90
2010 2011 2012 2013 2014 2015 2016 YTD
Status 11/2016
Companies publicly subjected to activist demands by year
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Activists are targeting even the largest companies
Market-cap of companies publicly subjected to activist demands since 2010 in Europe
20%
12%
25%
17%
16%Nano-Cap (Less than $50mn)
Micro-Cap ($50-250mn)
Small-Cap ($250mn-2bn)
Mid-Cap ($2bn-10bn)
Large-Cap (More than $10bn)
With Co-Investment vehicles, activists don’t need to buy up a large stake themselves,
they can get pledged support from existing shareholders who do not wish to be the
face of activism.
SOURCE: Activist Insight
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… and across all sectors with a focus on financial and services
Sector breakdown of companies publicly subjected to activist demands since 2010
25 %
24%17%
12%
8%
7%
4%1% <1%
Financial
Services
Basic Materials
Ind. Goods
Cons. Goods
Technology
Healthcare
Conglomerates
Utilities
SOURCE: Activist Insight
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UK is currently the most attractive jurisdiction for activists, but Germany is getting more in the focus
164
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2017 15
11 10 9 7 5
0
20
40
60
80
100
120
140
160
180
UK Germany Italy France Switzerland Netherlands Sweden Norway Ireland Finland
Spain 4
Austria 3
Luxembourg 3
Denmark 2
Cyprus 2
Belgium 1
Monaco 1
Czech Republic 1
Gibraltar 1
Ukraine 1
Bulgaria 1
Portugal 1
Poland 1
Malta 1
2016 2015
UK 33 25
Switzerland 8 7
Data: European companies publicly subjected to activist demands since 2010 (by HQ),
SOURCE: Activist Insight
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. Q&A
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American activism adapted for Europe
Activist investors learn to mind their
mannersFinancial Times
Stephen Foley, Kana Inagaki, Arash Massoudi,
Miles Johnson
August 7, 2015 7:26 pm
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There are a growing number of activist funds in Europe
Most active activists since 2010
17 17
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12 12
10
8
7
6 6 6 6
0
2
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Am
ber
Capital
Elli
ott
Managem
ent
Laxey P
art
ners
Cry
stal Am
ber
Cevia
n C
apital
Harw
ood C
apital
Weis
sAss
et
Managem
ent
Dam
ille I
nvest
ments
The
Child
ren's
Invest
ment…
Vin
cent
Bollo
ré(V
ivendi)
Tosc
afu
nd
Ass
et
Managem
ent
Knig
ht
Vin
ke
Ass
et
Managem
ent
Top 5 European Activist in 2016:
1. Cevian
2. Elliott Advisors
3. Amber Capital
4. TCI
5. Teleios
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Activist Investor Fund HQ Contacts # Public campaigns
(since 2010)
AUM ($mm)
ValueAct Capital Partners US Jeff Ubben 17 14,000
Cevian Capital Sweden Christopher Gardell, Harlan Zimmerman
15 9,000
Crystal Amber Fund UK Richard Bernstein 14 200
Knight Vinke Monaco Eric Knight 13 1,171
Pershing Square Capital Management
US Bill Ackman 13 22,308
Elliot US/UK Gordon Singer 11 23,000
Weiss Asset Management US Andrew Weiss,Paul Sherman
8 1,197
Trian Partners US Nelson Peltz 7 5,000
The Children’s Investment Fund UK Chris Hohn 6 12,000
Icahn Enterprises US Carl Icahn 6 20,000
Go Investments Partners UK Steve BrownPeter Butler
5 1,290
Amber Capital US Joseph Oughourlian 4 2,068
Harris Associates US David Herro 4 122,547
Third Point US Dan Loeb 3 14,000
Jana US Barry RosensteinCharles Penner
2 5,455
RWC Partners UK Nigel DaviesPaul Harisson
3 8,806
Who to look out for?
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. Q&A
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What should companies be aware of?
They will speak to:
1. Suppliers
2. Regulators
3. Shareholders
4. Proxy advisors
5. Retail shareholder associations
6. Current and X employees/directors
7. Competitors
8. Potential bidders
They will conduct site visits, meetings with board members and management
Activists spend a considerable amount of time preparing and researching the
target companies (1-2 man years of research)
Cevian Capital: The quiet activist hedge fund
Lars Forberg of Cevian, described his approach “Such investing is work intensive. “Before we make an investment, we typically spend a number of years researching the company – there are few investments that we make where we spend less than one year researching the company,” Förberg said.”Financial NewsStefanie EschenbacherNov 29 2016
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“Activists wield disproportionate power because …ownership … has polarised. On one side is the lazy money. About 20% of the typical firm is owned by index managers such as BlackRock and Vanguard, which mimic the market and charge low fees. …Alongside them are the managers of mutual funds and pension funds, such as Capital Group and Fidelity. They actively pick stocks and talk to bosses but their business is running diversified portfolios and they would rather sell their shares in a struggling firm than face the hassle of fixing it.”
The Economist, February 2015
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Growing influence of index managers
“We’re riding in a car we can’t get out of,”
said Vanguard’s Glenn Booraem.
“Governance is the seat belt and air bag.”Wall Street Journal
Sarah Krouse, David Benoit and Tom McGinty
25 October 2016
Daniel O’Keefe of investment firm Artisan Partners,
an active manager, contends that “the tyranny of
passivity is you have large pools of money that are
unengaged in their investments,” which he argues
is “a far greater risk than the tyranny of activism”.Wall Street Journal
Sarah Krouse, David Benoit and Tom McGinty
25 October 2016
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. Q&A
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Case Study #1
Bank of East AsiaFebruary 2016: Georgeson was mandated by Bank of East Asia (BEA) to defend against Elliott Advisors who called for corporate restructuring, amongst additional items in connection with the BEA April 2016 AGM
Actions taken: Profiling of Elliott as an activist, analysis of cases and tactics Governance Assessment and Review of BEA (Board Composition, Past Share
Issuance, Article Changes) Sector benchmarking of BEA vs. peers in the index Engagement strategy with proxy advisors and institutional investors drafted Solicitation of proxies from largest institutional investors
Outcome:All resolutions passed in favour of managementElliott continues to agitate for change
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Case Study #2
Kongsberg Automotive January 2016: Georgeson was mandated by Kongsberg to defend against TeleiosCapital Partners LLC (CH), Makuria Credit Master Fund Ltd (UK) and Constructive Capital AS (N) who proposed 5 new board members on a 9 member board, with a 12% stake (Co-investors had additional shares)
Actions taken: Deep dive shareholder ID, determining not just fund managers but underlying
clients and where voting authority stood Background analysis of the dissident board candidates Engagement with proxy advisors ISS and Glass Lewis Solicitation of proxies from largest institutional investors
Outcome:Activists withdraw EGM request and worked with Kongsberg on new candidates and a new EGM dateShareholder Candidate Bruce Taylor, was elected to the board and in June took over as chairman when Hans Havdal, Chairman stepped down
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Case Study #3
Alliance Trust PLC - April 2015 Shareholder meetingGeorgeson was mandated by Alliance Trust to defend against Elliott Advisors (12% shareholder) who proposed to add 3 independent directors
Actions taken: Outreach to over 12,000 directly registered & Alliance Trust Savings shareholders
through an outbound calling campaign Solicitation of proxies from the 150 largest institutional investors and private client
brokers
Drafting of messaging & direct mailing campaign to shareholders
Inbound helpline for retail and institutional shareholders
Engagement with proxy advisors ISS and Glass Lewis
Outcome:Alliance Trust settles with Elliott, electing 2 board members from Elliott’s candidatesAlliance Trust Chair steps downAlliance Trust appoints new ChairmanGarrett-Cox leaves Alliance TrustAlliance Trust approached by Rothschild fundRIT scraps merger plans with AllianceElliott buys 5% of British Empire trust
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Case Study #4Electra Private Equity PlcSeptember 2014: Georgeson was hired by Electra to ward off substantial shareholder Sherborne Investors’ (19% ISC) attempts to appoint Ed Bramson and Ian Brindle to the board. AGM/EGMs in October 2014, March 2015 and November 2015.
Actions taken: Shareholder identification campaign to identify private individuals holding shares
behind the Private Client Broker community Personalised Mailing for 4,760 shareholders on the register and behind Private
Client Brokers Telephone campaign to the top 2,300 private individual shareholders Accurate
forecasting and monitoring of proxy votes Outreach to the Top 100 institutional shareholders with accurate forecasting and
monitoring of proxy votes
Outcome:After successfully fending off Sherborne on several occasions, Sherborne upped their stake to 29% and enlisted the support of the funds own classes in order to control over 50% of the voting shares Sherborne gets CEO seat at ElectraEPE ends relationship with Electra PartnersElectra appoints first-ever CFO
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Recent Activism in Germany - 2016
Company Activist Action Date
Current Holding (%)
Action Group Action
SLM Solutions Group Elliott Management 20-Oct-16 20Business Strategy / M&A Activism/ Balance Sheet Activism
Replace Management, Oppose Terms of Merger, Dividends, Recapitalization
Bayer AG Henderson Group Plc 19-Jul-16 M&A Activism Oppose merger
STADA AG Active Ownership Capital 25-Jul-16 5.05Board Related Activism / Other Governance
Removal of CEO or other Board member / Replace Auditor / Gain Board Representation
Wyser-Pratte Management Co 27-Jun-16 3M&A Activism Push for Merger of Company with third Party
Volkswagen Andra AP-Fonden 23-May-16 Other Governance Lack of/Inaccurate information from Company
DSW 23-May-16 Other Governance Lack of/Inaccurate information from Company
Hermes Investment Management (Hermes Equity Ownership Services EOS)
23-May-16 Other Governance Lack of/Inaccurate information from Company
Office of the Comptroller of the City of New York 23-May-16 Other Governance Lack of/Inaccurate information from Company
The Children's Investment Fund Management 13-May-16 2Board Related Activism Removal of CEO or other Board member/ Remuneration
Standard Life Investments 02-Mar-16 Board Related Activism Board Independence
Aixtron SE Argonaut Capital 23-May-16 8.6M&A Activism Oppose merger
E.ON Knight Vinke Asset Management 19-May-16 M&A Activism Spin-off/sale of business division
Deutsche Bank Hermes Investment Management (Hermes Equity Ownership Services EOS)
18-May-16 Remuneration Remuneration
KWG Kommunale Wohnen AG
Petrus Advisers 11-Apr-16 M&A Activism Oppose takeover terms
ThyssenKrupp Cevian Capital 28-Jan-16 20Balance Sheet Activism Dividends
Source: Activist Insight
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. Q&A
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Shareholder Engagement – Preparing for Activism
• What do they see in me? Understanding true motivation of the Investor, and their investment horizon
• Regular dialogue and understanding of issues is critical – both good and bad – is it about cash, governance, risk, rewards or people?
• Ensure Legal, Financial, PR Advisers are briefed on holders and issues
• Try to segregate Company versus personal Agendas – can get difficult when specific criticisms are made
• Listen, and treat the holder with respect - maybe the activist has the courage to say to your face what others may not, and they could be long term holders
• Be available – the only thing worse than a bad meeting is no meeting so try not to shoot too many messengers
• Have Board Contingency Plan or standing Committee
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• For management/Board – be prepared for this to take up every waking hour until issues are resolved
• Tweet Tweet! Don't underestimate retail, role of web/ social media – or how short attention spans are …. Simplify your message, but speak to people….
• Journalists can be spectators encouraging the fight – but it’s a fight that can have two losers. Focus on what winning looks like – for all shareholders
• Seek areas of agreement as well as conflict – a good compromise is often the best outcome
• Most Investors just want the controversy to go away….and focus to return to the business…
So you’re going to have an EGM…..
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Lessons learnt
1. Activists are shareholders, so you should not avoid them;
2. They have very focussed portfolios and probably knows as much about the company as the board, if not more;
3. Keep detailed notes of your engagement with the activist including when they took place, who was involved and what was discussed;
4. Ask what the source of the activist information is, to understand how they are deriving their assumptions;
5. Ask for time to consider their thesis and their specific asks, before summarily dismissing their demands;
6. Take inventory of your other investors and when you last spoke to them;
7. Bring in the experts to help you with the communications, shareholder engagement, and the proxy advisor outreach.
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Agenda
1. Growth of activism
2. European context
3. Forms of activism
4. Case studies
5. Summary
6. About Georgeson
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Introduction to Georgeson
1935Founded in 1935, Georgesonwas acquired in 2003 byComputershare, a globalregistrar listed in Australiaand New York
15In total we have 15Georgeson offices globally, inall major financialjurisdictions
120In total the GeorgesonNorthern European team has120 years of combinedexperience in shareholderengagement
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We have over 15 experienced fulltime employees in London drawnfrom diverse backgrounds includinglaw, investment banking andcorporate governance
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Our client list includes 12 FTSE 100companies in the UK, 20 AEXcompanies in the Netherlands, 20 ofthe CAC40 in France, 4 of the DAX30 in Germany and 4 of the SwissSMI index.
140+We advise on more than 140transactions per year from ourNorthern European base, includingAnnual General Meetings, M&A andShareholder Activism campaigns
Local knowledge and presence with global reach and infrastructure
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Georgeson Office Locations
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Georgeson Recent Activism Defence Experience
2016Defence against
Worldview
2015
Defence against AOC/Guy Wyser Pratte
Defence against Elliot Advisors
Defence against Cevian Defence against Elliot Advisers
2016
Defence against Proxima Defence against Sherbourne Investors Defence against Natlata
Partners
Defence against OdeyAsset Management
Defence against Ben Turney
Defence against Elliot Advisors
Defence against Sapinda
2016 2016 2016
2016
2015
2015
2015 2015
2015
2015
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Contacts
Cas SydorowitzCEOGeorgeson Corporate Advisory Europe
3rd FloorMoor House120 London WallLondonEC2Y 5ET
Phone: +44 (0)207 019 7002Mobile: +44 (0)7810 750 442Email: [email protected]
Christof SchwabDirector Business DevelopmentComputershare Issuer Services
Elsenheimerstr. 6180687 MünchenDeutschland
Phone: +49 89 30903-348 Mobile: +49 160 95556220Email: [email protected]