US activist investors begin to force change in Europe

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Paul Singer speaking at the Delivering Alpha conference in New York City on September 13, 2016.

David A. Grogan | CNBC

Leading Wall Street activist investors are growing in importance in Europe, with more than $ 82 billion in capital now invested by shareholders publicly trying to force change in companies.

Activist investors are individuals or groups who buy substantial amounts of shares in a public company in order to gain seats on the board of directors and change the way it operates.

While hedge fund executives Bill Ackman, Carl Icahn and Paul Singer have long been household names on Wall Street, European companies are now feeling the pressure of expanding American activist players.

A recent example of militant success in Europe came on Monday in the form of a proposed merger between Just eat and Takeaway.com to form a £ 9 billion ($ 10 billion) food delivery giant.

Over the past two or three years we have seen quite a bit of what I would call the new style of activism in Europe.

Rich Thomas

responsible for advising European shareholders, Lazard

Connecticut-based activist fund Cat Rock Capital has a 2.5% stake in Just Eat and 4% in Takeaway.com, and has publicly called on Just Eat to pursue a merger with a rival for some time.

Alex Captain, founder and managing partner of Cat Rock Capital, said in a statement Monday that “the clear and decisive action” of the board of directors of Just Eat would allow “long-term shareholders to participate meaningfully in the creation. of future value “.

AJ Bell chief investment officer Russ Mold said in a note Monday that “it remains to be seen whether Cat Rock can take full credit for strategic development, but he appears to have had a major influence,” adding that this was “quite remarkable” given its relatively low participation.

“It shows that activists are getting more powerful and that lobbying a public domain company can often pay off rather quickly,” Mold added.

Capital less patient, more aggressive

Singer Elliott Management Corp’s hedge fund has outstripped competitors when it comes to deploying capital to drive business change in continental Europe, and particularly Germany, committing $ 3.4 billion in new capital during the first six months of 2019, according to data from Lazard.

Elliott has significant investments in a pharmaceutical and life sciences company Bayer and the software company SAP, as well as Thyssenkrupp, Uniper and Gea.

Rich Thomas, head of European shareholder advice at Lazard, told CNBC’s “Street Signs Europe” earlier this month that activist hedge funds were looking for ways to deploy capital in good-value opportunities, which spurs the spread of activism across the Atlantic.

“From a real dominant trend that we’ve seen in the last five, six, seven years now in the United States, it’s now spreading globally. In the last two or three years we’ve seen quite a bit of what I would call the new style of activism in Europe, “he said.

“It’s changing, and Elliott, for example, really shows how a less patient, more aggressive, more strategic style in its direction can be effective, not only in the United States but also in Europe.”

Thomas pointed out that in the first half of the year 46% of campaigns were about M&A strategy and incentives, rather than just focusing on balance sheets and shareholder returns, showing that the new breed of activism ” really goes to the fundamentals of who a business is. “

“We see that activism is really growing as a catalyst for these kinds of trades. A lot of times, especially in large caps, it’s about streamlining, simplifying, portfolio breaks,” Thomas said.

“Often more on small and mid caps, it is about putting a company up for sale if it does not reach the valuation it should on the public markets.”

Banks under fire

The beleaguered European banking sector also felt the wrath of shareholder activism in the final season of Annual General Meetings (AGMs).

In May, Barclays won a brisk effort of activist investor Edward Bramson and his hedge fund Sherborne Investors to win seats on its board of directors. Bramson had long fought with the British lender to roll back its ailing investment bank, in order to improve returns for shareholders.

But it wasn’t just the hedge fund giants that European banks had to worry about. RBS and HSBC confronted executives pressure from national shareholder companies and advisory bodies on executive compensation and pension plans.

Meanwhile German Bank President Paul Achleitner survived a motion for its withdrawal by a substantial part of the shareholders, because the share price of the German lender continued to slide amid a series of scandals and structural difficulties. Deutsche has since implemented a mass restructuring plan which involves the closure of its equities activity and will see the loss of 18,000 jobs by 2022.

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