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
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