Danone can stomach new activist investor – Breakingviews

Carol Ryan writes approvingly about a small stake by an activist investor in a previously entrenched French company:

Danone can stomach a new activist investor. A stake reportedly taken by U.S. hedge fund Corvex Management in the French yoghurt maker may be small, but would bring welcome pressure on management to meet its new margin target. Danone was once shielded from a Pepsi bid by the French state. If new investors bring good ideas and discipline, such defences won’t be necessary.

Keith Meister, the founder of Corvex and previous right-hand man of activist Carl Icahn, owns approximately 0.8 percent of Danone’s share capital, according to Bloomberg. The bite-size holding means Corvex is in no position to make aggressive demands, such as its ongoing attempt to derail a merger between chemicals groups Clariant and Huntsman.

Still, Meister’s arrival steps up pressure on Danone Chief Executive Emmanuel Faber to make the $53 billion dairy group more efficient….Some needling might be useful at a company that has previously disappointed investors with poor execution.

Danone has become emblematic of impregnable French companies ever since the French government scuppered reported interest from Pepsi back in 2005, making the yoghurt maker appear takeover-proof….

Were Corvex to bring useful ideas and discipline, it would make Danone more efficient, more profitable and more expensive to a would-be buyer. That’s a far more reliable form of takeover defence.

Source: Danone can stomach new activist investor – Breakingviews

Activism in Germany | Ethical Boardroom

Shareholder and hedge fund activism has become an influential force in German corporate life over the past 15 years or so, both in terms of corporate governance improvements and value creation, with approximately 400 campaigns launched by 100 (predominantly foreign) activist hedge funds against 200 of the country’s 650 public corporations.

Until recently, it was the threat of hostile takeovers that was deemed the principal corrective for poor management decisions and shareholder value destruction due to performance failures. Today, in Germany it has shifted to active monitoring by engaged or activist value minority investors – characterised by such an alignment of interests with and persuasion of fellow shareholders and institutional investors to generate support in the form of the requisite general shareholders’ meeting (AGM) majorities, if necessary. With 60 to 70 per cent (sometimes an even higher percentage) of the voting stock of leading German corporates owned by foreign institutional investors, this train of thought must be taken seriously.There are two significant factors that help contextualise activist campaigns and market acceptance of shareholder and hedge fund activism in the German corporate governance debate.

Firstly, 60 per cent of all 650 German publicly listed companies are controlled or dominated via share block ownership by families, founders, management teams, investors or holding companies. Thus only 250 German public companies lend themselves to the presumption that activism is dependent on a widely-held, dispersed shareholder ownership/population so that when negotiations with target management break down, the activist may resort to launching a confrontational proxy fight in order to replace some or all members of the supervisory board. They, in turn, may  recall the management and replace them with new managers who agree with  the activists’ strategic plan.Second, there is a certain consensus-oriented German corporate culture, etiquette and decorum that, over time, has demonstrated how publicity and accusatory campaigns against sitting management or supervisory board, proxy fights or resorting to litigation are by and large unsuccessful strategies, with only 20 per cent of all campaigns ever becoming public knowledge. There has only been one precedent (out of a total of seven attempts) where activists were capable of replacing the chairman of a supervisory board in an adversarial proxy fight – at pharmaceutical company Stada AG in August 2016.

In the view of many, the separation of ownership and control (Berle-Means) and the principal-agent problem (Jensen-Meckling) has recently led to sharp market cap drops and share price value-losses at the expense of shareholders in large DAX 30 German corporations and corporate groups, such as the utilities RWE and E.on, but also TUI, Commerzbank, Volkswagen and Deutsche Bank. It is no secret that concerned institutional investors have initiated discussions with activist hedge funds on these matters (see illustration opposite).

Observers believe that leading activist hedge funds, who acquire usually a minority position in the one to 10 per cent range (seldom more than 15 per cent total, depending on target size), could exert such additional monitoring function on behalf of all shareholders without necessarily destabilising the balance of powers between the AGM (shareholders), supervisory board and management board. First, they are not imposing their views on anybody, least of all management or the supervisory board, but seek to engage and present well-thought out alternative courses of action. Second, they have to win the votes and confidence of fellow shareholders and institutional investors in the first place in order to have any strategic impact.

So, to recap, there have been approximately 400 equity activist campaigns in the past 15 years or so in Germany, attaching to 200 public targets (out of a total of 650 listed companies), mostly hidden from the public.Further, assuming a base line of 400 campaigns, Thamm/Schiereck claim that 75 per cent of these samples have been kept under the lid and were never in the public limelight, on social media or mentioned in the press or legal/economic writings, reflecting the mainly informal approach take in these campaigns….

Interests and strategies of both activist hedge funds and German blockholders defy easy categorisation. Activists aim at creating value expressed in an increased share price of their portfolio companies. They employ intervention and campaigns built around some of the building blocks that we have presented. KUKA demonstrates that hedge funds may align themselves with blockholders to ride a rising stock price. On the other hand, German family blockholders may use activists to attract the interest of international institutional investors following the latter’s recommendations with the ultimate objective of boosting share value and selling their position – displacement through defection. Some activists adapt their strategies to the German context and demonstrate commitment to their portfolio companies, while German blockholders utilise activists to increase the value of their holdings, thus changing their preferences from commitment to liquidity.

Not unlike studies in the US, there are empirical findings in Germany that show there is considerable disciplinary power inhering in activist hedge funds. Virtually all listed companies in Germany (which have shrunk from about 1,000 to 650 in recent years) have an IR department now, monitoring closely their investor base. Many of them anticipate potential investments, interventions and engagements by activists and, in order to thwart campaigns, implement some of the typical activist demands, such as extra dividends, share buybacks or selling non-core divisions.

Source: Activism in Germany | Ethical Boardroom

Nell Minow on Daniel Loeb and Activism

VEA Vice Chair Nell Minow commented on Daniel Loeb’s new position at Nestle on NPR’s “Marketplace.”

Activist investor Daniel Loeb announced over the weekend that his hedge fund, Third Point, has taken a $3.5 billion stake in the Swiss food conglomerate Nestle, and he wants some changes at the company. That may sound like a lot of money, but the investment represents just over a 1 percent stake in the company. It’s enough though to get the company’s attention. That’s because activist investors are looking to drive change, unlike a lot of “passive” investors, who just sell their stock if they don’t like how a company is run. How do activist investors work? Experts say if activists have a reputation for adding value and getting good returns, and if they have appealing ideas, they can win over other shareholders who will help them push for change.

Uber founder Travis Kalanick resigns as CEO amid a shareholder revolt – The Washington Post

After several tumultuous months that culminated in a shareholder revolt, Travis Kalanick stepped down Tuesday as chief executive of the ride-hailing giant Uber.Kalanick, who helped founded Uber in 2009 and established it as Silicon Valley’s highest flying start-up, will stay on Uber’s board of directors, a company official confirmed. He was asked to resign in a letter from five major shareholders.

Source: Uber founder Travis Kalanick resigns as CEO amid a shareholder revolt – The Washington Post

Value of Shareholder Proposals, Even When They’re Wrong

[S]hareholder activists can help improve long-term value, even when following the activists’ proposals would not.  That is just as true today and these proposals may well prime the pump for future board or shareholder actions.  That is, GM has conceded that its stock is undervalued and that change is needed.  GM argues those changes are underway, and for now, most voting shareholder agree.  But we’ll see how this looks if the stock price has not noticeably improved next year.  An alternative path forward on some key issues has been shared, and that puts pressure on this board to deliver.  They can do it their own way, but they are on notice that there are alternatives.  And shareholders now know that, too.

This knowledge underscores the value of shareholder proposals as a process.  They can and should create accountability, and that is a good thing. I agree with GM that the board should keep control of how it structures the GM leadership team.  But I agree with the shareholders that if this board doesn’t perform, it may well be time for a change.

 

Source: Business Law Prof Blog

Breaking the Ice: Investors Warm to Climate Change

A few years ago, climate change was a fringe issue. Ignored by mainstream investors, environmental resolutions were lucky to receive 5 percent support. Now, issuers who try to ignore the associated risks could face serious financial consequences.

The victory of Occidental’s shareholders was arguably the result of a perfect storm. Over the past few years, climate change resolutions have become increasingly sophisticated. Where once they tended to be overly prescriptive and confrontational, they now aim to appeal to all parties involved.Many resolutions exploit investors’ fiduciary obligation to act in the best interests of their clients by emphasizing the relevance of the disclosures being requested. Recent climate change proposals also make more of an effort to placate companies. Indeed, by being more general, and in many cases advisory, most current proposals rely on investor support to pressure companies into implementing what they want.

Source: Breaking the Ice: Investors Warm to Climate Change

Investors expect to meet with Exxon on climate-impact report | Reuters

Exxon Mobil Corp investors will push to meet with oil company officials this summer to hash out elements of a climate-impact analysis following a shareholder vote calling for studies of technology and climate-related risks to its business.Exxon has said that it will reconsider its opposition to the request, not that it would begin discussions or initiate new studies. The shareholder proposal, filed by 54 groups including financial, religious and corporate governance activists, won the support on Wednesday of 62 percent of Exxon holders.

“I anticipate we’ll be having a meeting this summer,” said Tracey Rembert, assistant director of Catholic Responsible Investing at Christian Brothers Investment Services, one of the 54 co-filers.The White House’s decision on Thursday to withdraw from the Paris agreement on climate change has no bearing on the proposal. “We expect the scenario assessment will start to be done quickly at Exxon,” Rembert said.

The investors behind the proposal routinely met in past years with Exxon between December and February to discuss annual meeting proposals, she said. Earlier discussions because of the majority vote are in order.

Source: Investors expect to meet with Exxon on climate-impact report | Reuters

Shareholder Vote Amps Up Pressure for Energy Company Climate Risk Analysis and Disclosure With a Second Majority Vote

Investors today sent a strong signal regarding their growing concerns about climate risk with a majority vote at PPL Corp. in support of a shareholder proposal calling on the company to conduct two degree scenario analysis on its full portfolio of power generation assets and planned capital expenditures through 2040. The proposal calls on the company’s board and management to analyze the company’s business plans and practices against a range of scenarios including one where global temperature rise is limited to no more than 2 degrees Celsius, consistent with the global transition to a new clean energy economy.

“Investors understand that the transition to clean energy and a lower carbon economy is inevitable and well underway. We need to know what companies are doing to adapt and succeed in this new environment,” said New York State Comptroller Thomas DiNapoli who filed the resolution, which also was supported by CalPERS among others. “We need to know that the company has a comprehensive strategy, not just a piecemeal approach. We look forward to working with PPL to make progress.” The New York State Comptroller is also one of the lead filers of a similar resolution that will go to a vote at ExxonMobil on May 31.

Source: Shareholder Vote Amps Up Pressure for Energy Company Climate Risk Analysis and Disclosure | Ceres

First Climate Change Shareholder Proposal to Achieve Majority Support: BlackRock helps pass climate resolution at Occidental

Asset manager BlackRock Inc on Friday said it voted in favor of a shareholder proposal calling on Occidental Petroleum to report on the impact climate change could have on the energy company’s business, helping it to pass.The comments by BlackRock, the world’s largest asset manager, also marked a more detailed level of explanation than it has traditionally offered for its proxy votes, which could make it even more influential.

BlackRock, a major Occidental investor, last year had opposed a similar shareholder resolution, which failed to get a majority of support from investors.In a statement sent by a BlackRock spokesman explaining the switch, the fund firm said that despite talks with Occidental, “we remain concerned about the lack of discernable improvements to the company’s reporting practices” on climate issues.

An Occidental spokesman said via e-mail the shareholder resolution passed at the company’s annual meeting, held in Houston, Texas on Friday.”The board acknowledges the shareholders’ support for this proposal,” Occidental Chairman Eugene Batchelder said in a statement e-mailed by a company spokesman. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the Company’s assessment and management of climate-related risks and opportunities.”

Source: Switching sides, BlackRock helps pass climate resolution at Occidental | News | KFGO-790