Zodiac Aerospace should be open to strategic opportunities and address governance issues – CIAM
Zodiac Aerospace [EPA:ZC] should undertake a strategic review and be open-minded about all opportunities in its rapidly consolidating sector, according to activist Charity Investment Asset Management (CIAM) partner Anne-Sophie D’Andlau.
The company should be looking at different opportunities via a review given its poor performance over the past two years, she said. The company has warned on profits nine times in that period, and is underperforming its peers, she said.
The sector is consolidating at the moment, so the board needs to be aware of all the possibilities and be open-minded to follow them, D’Andlau said, adding: “We don’t know whether they are open to that right now or not.”
The French activist went public this week with a campaign targeting a “yellow card” protest vote at next week’s 19 January AGM against Zodiac’s non-independent directors aligned with family shareholders, who hold 36.6% of Zodiac’s voting rights. CIAM has a stake of “a little below 1%”, it said.
CIAM is actively encouraging Zodiac’s shareholders to vote against the renewal of two directors and appointment of a new director, all of whom are connected to the families, D’Andlau said. A vote in favour of these directors would mean only five truly independent board members out of 12, she said.
Rumours of a potential sale of Zodiac persisted throughout 2016, with France’s Safran [EPA:SAF] and United Technologies [NYSE:UTX] of the US rumoured as a potential acquirers, particularly after Rockwell Collins [NYSE:COL] and Zodiac’s main competitor B/E Aerospace [NASDAQ:BEAV] decided to merge.
Cross-border M&A generally could benefit under a Trump administration, so US defence companies looking for uplift would look at the likes of Zodiac, a sector banker said.
There is also a dearth of smaller and mid-sized defence companies available for acquisition in the US, where consolidation has been more prominent than in Europe, he said.
The banker put Meggitt [LON:MGGT] and Cobham [LON:COB] in the same boat, saying the UK and European defence sector is a “disaster”.
Zodiac had lost 16.1% of its value over the two years to 20 December, according to figures collated by CIAM from Bloomberg. Safran was up 41.9% and Thales [EPA:HO] up 109.9% over the same period, while Meggitt and Rolls-Royce [LON:RR] were in negative territory, down 2% and 18.9% respectively.
Meggitt has attracted the attention of US activist Elliott Management, while ValueAct Capital partner Bradley Singer is now a board member at Rolls-Royce, as reported.
CIAM believes Zodiac’s poor performance could be mitigated by more aerospace sector experience on the board, D’Andlau said.
A substantial “against” vote at this year’s AGM would be like sending a “yellow card”, she said, adding that next year it could be a “red card”.
That could mean non-family shareholders putting forward a new board member at next year’s AGM, “or some other options that I won’t go into now”, she said.
CIAM, largely via proxy solicitor Georgeson, is urging shareholders to vote against six resolutions in total, and hopes to see at least an increase to the protest vote at last year’s AGM, as reported.
At 2016’s AGM, 19.39% and 20.23% voted against the renewal of Didier and Elisabeth Domange respectively, while in 2015, 21.94% voted against the renewal of Gilberte Lombard, who is once again up for renewal.
The activist has recommended shareholders vote against the appointment of a representative of Fidoma, a company linked to the family shareholders, as a new member of the supervisory board; and against the renewal of Vincent Gerondeau and Lombard’s terms on the board.
It has also recommended to vote against three resolutions relating to performance shares granted to three Zodiac executives.
The AGM will take place at 4pm CET on 19 January at Le Port-Marly near Paris.
Zodiac did not respond to a request for comment.