British board­rooms be­neath the glare of the US ‘vul­tures’

Ac­tivist El­liott Man­age­ment has toned down its ag­gres­sive ap­proach, but it is prov­ing just as ef­fec­tive in the UK, says Lucy Bur­ton

The Sunday Telegraph - Money & Business - - Front page -

When the four men marched into the room, the at­mos­phere changed in­stantly. The quar­tet were all hedge fund man­agers from the UK arm of El­liott Man­age­ment, the $34bn (£25bn) “vul­ture” ac­tivist fa­mous for its ag­gres­sive cor­po­rate bust-ups and decade-long fight with the Ar­gen­tinian gov­ern­ment. Their ap­pear­ance at the AGM of one of the UK’S big­gest com­pa­nies could not go un­no­ticed.

“It was bizarre – a lit­tle bit of a boys’ club, they sat there all to­gether mak­ing notes, say­ing noth­ing, do­ing noth­ing,” says one ex­ec­u­tive. “It seemed a lit­tle bit play­ground, sim­ply say­ing look, we’re here. The im­pres­sion is that they’ll get in the cab, tell the driver how to drive, then get out at the next set of traf­fic lights.”

But the tac­tics are highly ef­fec­tive. Ear­lier this month, El­liott suc­ceeded in its dra­matic cam­paign to wres­tle con­trol of Tele­com Italia’s board from French me­dia group Vivendi after a long-fought bat­tle, with those in­volved telling how El­liott would comb through the tini­est of de­tails.

When Tele­com Italia lent one of its meet­ing rooms to an ex­ec­u­tive at Vivendi for a day, for ex­am­ple, sources said it took barely 24 hours for El­liott’s lawyers to find out, and fire out a let­ter de­mand­ing why. On May 4, the US hedge fund won enough share­holder sup­port to beat Vivendi for con­trol of the Ital­ian phone com­pany’s board.

“When they won, it was like an Amer­i­can base­ball team had won the fi­nal, they were all whoop­ing and high­fiv­ing. The pres­i­dent of the AGM had to say, ‘ex­cuse me we’re not in a sta­dium here’,” says an ex­ec­u­tive.

El­liott and its bil­lion­aire boss Paul Singer have long been known to take dis­putes up sev­eral notches in or­der to win, fa­mously seizing con­trol of an Ar­gen­tinian navy ship in 2012 with more than 200 peo­ple on board as part of a 15-year fight with the coun­try over debts.

Now the world’s most feared in­vestor is dig­ging its teeth fur­ther into Europe, ramp­ing up its fo­cus on UK cor­po­rates in need of a shake-up fol­low­ing years of work be­hind the scenes.

“What we’re see­ing com­pared to a few years ago is [UK] man­age­ment teams pick­ing up the phones and want­ing to meet us – peo­ple are will­ing to lis­ten,” says one ex­ec­u­tive at El­liott, who asked not to be named. “There’s an en­gage­ment that wasn’t there a few years ago.”

It’s been a long time com­ing. In the heat of El­liott’s feud with Dutch paints group Akzo No­bel last year, City in­vestors say they re­ceived weekly calls from El­liott ex­ec­u­tives try­ing to rally sup­port for their re­spec­tive cam­paigns. Known to spend years re­search­ing a sin­gle com­pany be­fore tak­ing any ac­tion, share­hold­ers say the firm’s port­fo­lio man­agers have shown them slides of anal­y­sis that roll on for up to 80 pages.

“The de­tail is phe­nom­e­nal – they know more than the av­er­age sell-side an­a­lyst and more than ex­ec­u­tives know about their own com­pany,” says one se­nior fund man­ager.

“What they’ve got is bloody-minded tenac­ity, and that goes a long way. But they know they will never suc­ceed in these things un­less they get the sup­port of main­stream in­vest­ment in­sti­tu­tions.”

Hav­ing spent years get­ting into the weeds of each com­pany while cur­ry­ing favour with some of the City’s most in­flu­en­tial fund man­agers, El­liott has made no se­cret of the fact that the UK is top of its tar­get list.

This year alone it has taken aim at shop­ping mall group Ham­mer­son, which owns Bices­ter Vil­lage, Costa Cof­fee owner Whit­bread, book­store chain Water­stones, City soft­ware firm Fidessa, tech­nol­ogy com­pany Mi­cro Fo­cus, ar­ti­fi­cial joint-maker Smith & Nephew, en­gi­neer­ing gi­ant GKN, broad­caster Sky and An­glo-aus­tralian miner BHP Bil­li­ton.

But those who have worked closely with El­liott’s UK arm do not speak of bloody bat­tles and ruth­less tac­tics in the same way those in the US or even some in Europe do. While El­liott’s founder and chief ex­ec­u­tive is re­garded as one of the tough­est money man­agers on the planet, his el­dest son Gor­don, who lives in north Lon­don’s St John’s Wood and runs the UK busi­ness, is de­scribed very dif­fer­ently in fi­nan­cial cir­cles.

Friends paint a pic­ture of him as quiet speak­ing and self-ef­fac­ing, some­one who avoids large din­ner events and prefers to lis­ten rather than speak. Sim­i­lar to his fa­ther in lit­tle more than hob­bies – the pair share a pas­sion for Arsenal FC as well as for mu­sic, with Gor­don chair­man of a char­ity that pro­vides in­stru­ments and tu­ition to Lon­don schools – those in the City say the way he does busi­ness is very dif­fer­ent to what might be ex­pected.

With lit­tle pro­file in Europe and no plans to try and build one up, those who work for him claim he runs a flat hi­er­ar­chi­cal struc­ture where the 70-odd staff are en­cour­aged to pitch in ideas and make their own de­ci­sions. Those on the out­side say they feel there is a de­lib­er­ate de­ci­sion to give the UK branch of El­liott a dif­fer­ent char­ac­ter to the one it is fa­mous for in the US.

“[Gor­don] is aware he has to have a dif­fer­ent ap­proach to that in the States and is not go­ing to get any­where by wreak­ing havoc,” says one share­holder. “The US has a much more ‘bull­dog-in-a-china-shop’ ap­proach – it’s very out there, very con­fronta­tional, very pub­lic.

“El­liott has adapted its style to be more con­struc­tive [in the UK] and es­tab­lish a re­la­tion­ship with the com­pany from the start rather than go­ing for the jugu­lar from the out­set.”

In­deed, the UK op­er­a­tion has gone from strength to strength since it pulled to­gether a team of ad­vis­ers six years ago to help it lobby for change at in­vest­ment man­ager Al­liance Trust.

Yield­ing a team of spe­cial­ists that in­cluded con­sul­tant Boudicca and bro­ker Nu­mis, it even­tu­ally suc­ceeded in forc­ing out Al­liance’s boss Kather­ine Gar­rett-cox. It was a wa­ter­shed mo­ment for the busi­ness in Europe.

“We tried to come up with ways of win­ning in the UK and they lis­tened,” says an El­liott ad­viser. “That’s why they’ve done well. It was bring­ing the horse to the wa­ter, and it was up to the horse to drink. Now they’re rid­ing high. The very hard line ap­proach doesn’t gen­er­ally work here.”

A for­mer Al­liance ex­ec­u­tive agreed that the cam­paign was a “dis­tinct turn­ing point” for the hedge fund in Europe. “The ad­vice made them aware of the need to get at the gov­er­nance sec­tions of in­sti­tu­tional share­hold­ers and help them get the mes­sage across to peo­ple who were in­flu­en­tial in cast­ing their votes – gov­er­nance con­cerns in the UK are not al­ways iden­ti­cal with those in the US.”

Some say El­liott suc­ceeded where many of its US ri­vals failed be­cause it spot­ted the dif­fer­ence. “The rea­son why the whole ac­tivist in­vestor thing de­vel­oped in the States is be­cause there was a huge gap be­tween in­vestors and com­pa­nies, which has never been the case in the UK be­cause we’ve al­ways had the ac­cess,” says a Lon­don-based share­holder who works closely with El­liott. “Ac­tivists charg­ing in and mak­ing a lot of noise ac­tu­ally got a stronger, more pos­i­tive re­cep­tion in the US, whereas here that gap never ex­isted and there­fore you don’t need that level of con­fronta­tion.”

The lessons from the Al­liance Trust cam­paign have made a last­ing im­pact on the way El­liott is per­ceived in Europe. While still feared among chief ex­ec­u­tives, Water­stones’ boss James Daunt says he was not con­cerned when in­vest­ment bank Roth­schild re­turned from its re­cent search for a buyer for the book­shop chain with El­liott as the in­ter­ested party.

The hedge fund agreed to buy the re­tailer for an undis­closed sum late last month, the plan so far be­ing that Daunt and the rest of his lead­er­ship team will re­main in place and the com­pany will grow.

“My only amuse­ment was to find the Ar­gen­tine war­ship. If you click on images, you get this won­der­ful beau­ti­ful sail­ing boat, cov­ered in bat­tle­ship grey. I take all of this with a pinch of salt,” he says. “I imag­ine we’ll have to dance a bit quicker than we have been [but] they couldn’t have been more pos­i­tive or more sen­si­ble – we needed to be sold and they bought us. When they get the keys I might start singing a very dif­fer­ent tune, but right now it’s a re­ally plain vanilla [deal] and they pro­fess they’re go­ing to be in­vest­ing.”

Plain vanilla is not usu­ally a word as­so­ci­ated with El­liott. But be­hind its re­lent­less tac­tics and foren­sic eye for de­tail are ideas that are rarely that dif­fer­ent from any­body else’s – a point one of El­liott’s port­fo­lio man­agers ad­mit­ted over a re­cent in­vestor lunch.

“They ad­mit­ted that they don’t have orig­i­nal ideas. Usu­ally lots of other in­sti­tu­tions will have the same views, but they don’t put them across forcibly enough,” says one source.

“You of­ten find with com­pa­nies that get at­tacked [by El­liott] that the board has not been on top of it, be­cause it hasn’t been get­ting the mes­sages it should have been get­ting from share­hold­ers. What has changed now is that in­stead of peo­ple say­ing ‘El­liott are a nasty piece of work, we’re go­ing to dis­re­gard them’, now peo­ple take them more se­ri­ously. They’ve got a track record and they’re much more skilled in get­ting their mes­sage across.”

Gor­don Singer (left) at the Golden Globe Awards after-party, Bev­erly Hills, in 2011

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