You might think chocolate egg-hunting is the only sport on offer this April, but you would be wrong.
April heralds the start of another equally entertaining, if less calorific, occasion – AGM season. That fun-filled (yes, really) few weeks between April and late May when investors run the gamut of annual meetings, laden down with weighty reports, voting on everything from remuneration packages to whether to sack the auditor.
There is almost always at least one guaranteed bust-up between shareholder and company, while unhappy activist investors, pushing for change, find annual meetings the perfect opportunity to fire the first volley of grapeshot into the boardroom.
And this year’s AGM season is already proving to be a vintage one.
Things got off with a bang last month when Elliott Advisors firmly trained its sights on Alliance Trust, the investment trust headed by Katherine Garrett-Cox, in a fractious mud-slinging melee that is becoming increasingly personal.
With a track record that includes nasty spats with National Express and Morrisons – as well as Actelion, the Swiss biotech group – Elliott is Alliance Trust’s largest (and unhappiest) shareholder. It has tabled a motion to appoint three independent executives to the board and believes new blood is needed to help revitalise the 127-year-old firm.
Meanwhile, Cevian Capital, Europe’s biggest activist investor, has doubled its stake in RSA to more than 13%, heaping further pressure on chief executive Stephen Hester, who has been tasked with turning around the embattled insurer. Cevian has about $9bn (£6bn) of funds under management and has forced change before at plumbing supplies giant Wolseley, G4S and Cookson.
Bwin.party digital entertainment, the British online gambling group, is grappling with Jason Ader of Spring Owl Asset Management, and last year Electra Private Equity faced a boardroom assault from Sherborne Investors, the investment vehicle of Edward Bramson, a US-based corporate raider.
The increasing combativeness of investors reflects the growing rise in shareholder activism across Europe at a time of record inflows into activist funds worldwide. At the same time, record levels of cash on company balance sheets coupled with continued access to cheap debt financing in a low-growth environment is prompting further calls for action.
When activists appear on the shareholder register it often triggers immediate headlines and can cause panic in corporate boardrooms. Activists most commonly seek board representation but can also agitate for a company to spin off assets, such as property, consider mergers, or de-list.
Elliott Advisors appeared on the shareholder register of grocer Morrisons last year and promptly demanded it spin off its vast property portfolio. It failed in its mission and has since sold its stake, but Morrisons remains hard pressed to demonstrate that its business, including its property strategy, is working.
Intu Properties faced a serious challenge in 2010 when Canada’s Simon Property Group attempted (and failed) to take over the retail group in the wake of its deal with Peel Group to acquire the Trafford Centre in Manchester.
Three main reasons why a company can be targeted are poor share price performance (Alliance Trust shares have traded for some time at a heavy 14% discount to net asset value, for example), ineffective or inefficient capital deployment and poor corporate governance.
A survey by FTI Consulting in January showed that nearly 80% of the world’s top 100 institutions now believe that activists could have a favourable impact on companies and the market.
The survey echoed findings by Deutsche Bank and Linklaters, which found in a comprehensive study of 2,000 interventions by activists between 1994 and 2007 that far from destroying long-term value, activist investors could “meaningfully” help to improve a company’s operating performance.
However, some investors are still wary of the potential negative effects of activists’ short-term gains at the expense of long-term shareholder value, while in Europe the preference is for a “more co-operative form” of activism, rather than the US-style proxy battles and courtroom fights.
Whatever form activism takes, British companies need to have their battle plans ready. Ignore an activist at your peril.
Deirdre Hipwell is mergers & acquisitions correspondent at The Times
