EU: New hunt­ing ground for US in­vestors

Kuwait Times - - BUSINESS -

Af­ter buy­ing big Amer­i­can brands like Ap­ple, Pepsi and Ya­hoo!, ac­tivist share­hold­ers - in­vestors in search of big div­i­dends - now are set­ting their sights on Euro­pean com­pa­nies like Nes­tle. “No com­pany is re­ally im­mune from ac­tivism ex­cept per­haps for the very largest com­pa­nies,” says Gre­gory Taxin, man­ag­ing di­rec­tor of Spot­light Ad­vi­sory, a con­sult­ing firm for ac­tivists.

The fa­vored tar­gets of ac­tivists, said cor­po­rate at­tor­ney David Katz, at Wachtell, Lip­ton, Rosen & Katz, are “com­pa­nies that have a lot of cash that haven’t been re­turned to share­hold­ers.” In an­nounc­ing plans last week to buy $3.5 bil­lion of Nes­tle shares, US bil­lion­aire Daniel Loeb re­vealed the Euro­pean am­bi­tions of these in­vestors with bulging wal­lets who say they want to re­store power to share­hold­ers.

In ad­di­tion to cost-cut­ting, Loeb is ask­ing Nes­tle to sell its his­toric stake in L’Oreal in or­der to boost the share price and div­i­dends. “L’Oreal has been a fan­tas­tic in­vest­ment,” Loeb’s spokes­woman Elissa Doyle told AFP. How­ever, it is “a non-core in­vest­ment for a pri­mar­ily Food & Bev­er­age and pack­aged goods business.” In the wake of Loeb’s move, Nes­tle an­nounced the ac­qui­si­tion of $21 bil­lion of its own shares, which should boost the stock price. But Katz said, “I do not know if this will be enough to re­move the pres­sure.”

Loeb is not the first US ac­tivist to go af­ter a foreign gi­ant. His com­pa­triot Nel­son Peltz, through his in­vest­ment fund Trian Part­ners, holds a stake in the French yo­gurt-maker Danone. And Paul Singer has in­vested, via his El­liott Man­age­ment fund, in South Korea’s Sam­sung, the Aus­tralian-Bri­tish min­ing group BHP Bil­li­ton and the Bank of East Asia.

All want the same thing: quick re­turns on in­vest­ment by re­quir­ing cost-cut­ting, as­set sales or share buy­back pro­grams. And when they do not suc­ceed, these ac­tivists usu­ally en­gage in high pro­file me­dia cam­paigns. And they of­ten win. More than 2,900 ac­tivist cam­paigns have been recorded in the United States since 2010, in­clud­ing 645 in 2016 alone, ac­cord­ing to FTI Con­sult­ing. Most sec­tors of the econ­omy are af­fected. But “the US mar­ket re­mains crowded and gen­er­ally over­val­ued, (so) ac­tivist in­vestors will con­tinue to fo­cus their sights on foreign ju­ris­dic­tions, in­clud­ing not only Europe, but Aus­tralia and Asia as well,” says An­drew Freed­man, co-head of the Share­holder Ac­tivism group at the Ol­shan Frome Wolosky law firm.

“The type of cor­po­rate self-re­flec­tion oc­cur­ring in the US is hap­pen­ing to a much lesser de­gree in Europe, leav­ing more op­por­tu­ni­ties at Euro­pean com­pa­nies for ac­tivist in­vestors to cat­alyze value cre­ation.” Dan Zac­chei, one of the lead­ers of Sloane & Com­pany, a firm ad­vis­ing ac­tivists, said Europe is at­trac­tive be­cause of friendly laws and many com­pa­nies do not have de­ter­rent mea­sures against po­ten­tial preda­tors.

“Euro­pean com­pa­nies have less strin­gent cor­po­rate de­fenses and may be more share­holder (or in this case ac­tivist share­holder) friendly,” he said. The Con­ti­nent also is in the midst of po­lit­i­cal sta­bi­liza­tion with the start of ne­go­ti­a­tions on Brexit, while in the United States there re­main ques­tions about the ma­jor re­forms-tax cuts and in­fra­struc­ture in­vest­ment-promised by Don­ald Trump. To suc­ceed in Europe, how­ever, ac­tivists will have to deal with strong trade unions and govern­ment in­ter­ven­tions, which is rarely the case in the United States.

“Ac­tivist in­vestors do not in­vest in a com­pany to im­me­di­ately go hos­tile or start a proxy con­test. Their hope is for a real, be­hind-the-scenes di­a­logue with re­cep­tive man­age­ment and to only es­ca­late the sit­u­a­tion pub­licly if the com­pany is un­will­ing to en­gage or con­sider rec­om­mended change,” says Freed­man, whose law firm has set up an ac­tion plan to help ac­tivists in their cam­paigns in Ire­land, the United King­dom and France in par­tic­u­lar.

Zac­chei cau­tions that com­mu­ni­cat­ing their goals to pen­sion funds can pose a real chal­lenge for these in­vestors, who need to un­der­stand what is­sues they care about most. “It’s not dis­sim­i­lar to a po­lit­i­cal can­di­date from the (US) north­east hav­ing to find a way to con­nect with vot­ers in the heart­land,” he said. Even that may not be enough. The El­liott fund re­cently failed to con­vince the Dutch group Akzo No­bel, in which it has be­come a share­holder, to merge with the Amer­i­can PPG In­dus­tries, de­spite its pres­sure. — AFP

BER­LIN: The global head­quar­ters of on­line food or­der­ing and de­liv­ery gi­ant De­liv­ery Hero, in Ber­lin on June 27, 2017. Germany-based on­line food or­der­ing ser­vice ‘De­liv­ery Hero’ plans a Frank­furt stock mar­ket flota­tion on June 30, 2017 say­ing in­vestors’ cash will help it ex­pand fur­ther around the world. —AFP

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