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With Crowding in U.S. Market, Activist Investors Look to Europe
Activist investors — money managers who seek to shake up a company’s strategy in search of huge paydays — have been growing in size and power in the United States, bending the knees of even the biggest corporate titans.
Now, these investors are taking their fights overseas with bigger and bolder bets.
The latest to step onto the global stage is Daniel S. Loeb, who in his first major European campaign is looking to rattle the Swiss food giant Nestlé.
By taking a $3.5 billion stake, including options — his biggest wager to date — Mr. Loeb’s $17.5 billion hedge fund Third Point is betting that Nestlé can rev up its growth if it listens to Third Point’s proposals, which include selling off Nestlé’s stake in L’Oréal. Investors appeared to applaud Mr. Loeb’s gambit, sending shares of Nestlé up 4.3 percent in trading in Zurich on Monday.
Other European giants have entered activists’ cross hairs. This year, Elliott Management, the $33 billion firm run by Paul E. Singer, took on both the Dutch paint maker Akzo Nobel and BHP Billiton, a British-Australian mining firm.
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Third Point, a Hedge Fund, Sets Its Activist Sights on Nestlé JUNE 25, 2017
With swelling coffers — activists now manage $121 billion on behalf of private investors, pension funds and sovereign wealth funds — and a growing number of competitors in the United States, some activists are finding more opportunities abroad than at home.
“The U.S. market has lots of activists in it looking for ideas and has been picked over,” said Greg Taxin, managing director of the activist advisory firm Spotlight Advisors and a founder of Glass, Lewis & Company. “If you’re Paul Singer and managing $33 billion, you have to look into other markets, and you have to be sophisticated.”
The biggest American funds are no strangers to venturing abroad in their activist campaigns. Elliott has been willing to take on Samsung, the biggest conglomerate in Asia, and Bank of East Asia in Hong Kong. It even challenged the government of Argentina in a decade-long legal battle over that nation’s debt default.
Mr. Loeb has urged changes at Sony and other Japanese companies. And Nelson Peltz of Trian Partners pushed for changes at the yogurt-and-Evian producer Danone five years ago.
At a hedge fund conference in Las Vegas in May, managers talked about how Europe had transformed from a region of political uncertainty to one with stability. And with the conclusion of many market-moving events, like Britain’s decision to leave the European Union and France’s presidential election, Europe has become a region with more certainty than the United States, where political turmoil swirls around the Trump White House.
At the same time, many European countries lack the sort of obstacles that American companies can throw at activists, said David Hunker, the head of shareholder activism defense at JPMorgan Chase.
“In general, Europe as a whole is easier from an activist perspective,” he said. “The types of structural protections that you have in the U.S., like poison pills or staggered boards, are either much less common or just not permissible in Europe.”
Indeed, Switzerland’s corporate law could provide some help to Mr. Loeb.
In Switzerland, shareholders elect each member of the board individually, meaning that if Mr. Loeb chose to nominate a new board member and that candidate received a majority of the vote, that candidate would be added to the board without a contest.
“It makes it easier for an activist to get someone on the board,” Mr. Taxin said.
On Monday, a representative for Nestlé said in a statement: “As always, we keep an open dialogue with all of our shareholders, and we remain committed to executing our strategy and creating long-term shareholder value. Beyond that, we have no specific comment.”
Mr. Loeb declined to comment for this article.
The ambitious corporate campaigns abroad speak to the maturation of the hedge fund industry, as well as to the growth of American-style activism. Once seen as a small group of loudmouth know-it-alls and viewed with suspicion by big institutional shareholders like state pension funds, in recent years, activist investors like Mr. Peltz and William A. Ackman have at times been welcomed by these same shareholders and seen as a positive force for change in a recalcitrant company.
These same institutional shareholders have in turn begun to see activism as a lucrative investment, pouring billions into activist hedge funds.
With more money in the sector, and more activists searching for companies to wage campaigns against, the landscape in the United States has become crowded.
When Mr. Loeb disclosed a large position in the auction house Sotheby’s in 2013, he became the third activist at the company, joining Trian Partners and Marcato Capital Management. Hertz, the car-rental company, found itself under siege by two major activist investors. As soon as Mondelez International finally acquiesced to one activist, Trian, by giving it a seat on the board, Mr. Ackman, of Pershing Square Capital Management, showed up.
Finding new targets in Asia or Europe is no guarantee of success. So far, the activists’ record abroad has been mixed.
Despite pressure from Elliott, Akzo Nobel rebuffed a takeover attempt by its American rival PPG Industries. Mr. Loeb’s battle against the Sony Corporation lost steam when he was unable to persuade the company to sell part of its entertainment unit.
Foreign campaigns also come with their own challenges, notably shareholders suspicious of American interlopers.
Eleazer Klein, a partner at Schulte Roth & Zabel who oversees that law firm’s global shareholder activism group, said, “A lot of the share ownership is in the hands of people who don’t think the same way that U.S. institutions think.”
Many companies that are listed in Europe and in Asia have one large shareholder that is either a family or the government, something that is less common in the United States, Mr. Klein said.
Yet mutual fund giants like BlackRock and T. Rowe Price have increasingly become big shareholders in companies around the world. Such firms have often indicated a willingness to back activists to bolster a company’s stock price.
Still, American hedge funds like Elliott and Third Point have learned to be mindful of local culture and tend to conduct less overtly hostile campaigns.
Mr. Loeb has forged a reputation for writing stinging criticisms in so-called poison-pen letters to corporate chieftains. So far, however, Mr. Loeb has had only praise for Nestlé’s chief executive of six months, Ulf Mark Schneider, writing in a letter to investors that Mr. Schneider had “an impressive track record.”
While hedge fund and private equity managers have become an accepted part of the corporate world, in Europe there is still some hostility toward these private investors.
Franz Müntefering, a former head of the Social Democratic Party of Germany, once called American investors “swarms of locusts that fall on companies, stripping them bare before moving on.”
Mr. Hunker, of JPMorgan Chase, said: “We’re still waiting for the European institutional set to be as open to activists as their American counterparts are. With an iconic British or French company, are the big local pension funds willing to vote their shares in favor of an activist?”
Darden Restaurants beats by $0.03, beats on revs; guides FY18 EPS in-line, revs above consensus and raises dividend 12.5% (90.08)
- Reports Q4 (May) earnings of $1.18 per share, excluding non-recurring items, $0.03 better than the Capital IQ Consensus of $1.15; revenues rose 8.1% year/year to $1.94 bln vs the $1.86 bln Capital IQ Consensus.
- Same-restaurant sales increased 3.3% for the quarter, excluding Cheddar's Scratch Kitchen
- +4.4% for Olive Garden +0.5% for The Capital Grille +0.1% for Yard House +3.5% for LongHorn Steakhouse +3.3% for Eddie V's -1.3% for Seasons 52 +1.4% for Bahama Breeze
- Co issues guidance for FY18, sees EPS of $4.38-4.50, excluding non-recurring items, vs. $4.42 Capital IQ Consensus Estimate; sees FY18 revs of +11.5-13.0% to ~$7.99-8.10 bln vs. $7.89 bln Capital IQ Consensus; comps +1-2%; 35-40 new restaurants.
- On June 26, 2017, the Board of Directors increased the quarterly dividend 12.5% to $0.63 per common share. The quarterly dividend is payable on August 1, 2017 to shareholders of record on July 10, 2017. The Company repurchased ~$15 million of its outstanding common stock
A group of Hong Kong stocks have lost more than $6bn in a series of mysterious plunges that left the worst of the fallers down 95 per cent – and 13 of them down more than 50 per cent.
The cause of the collective plunges was not immediately clear, but they are the latest in a series of sudden stock swings in the city that have prompted warnings about the dangers of stocks with small free-floats and within that, highly concentrated shareholdings.
One likely trigger could have been a margin call. Pledging shares for loans is common and the dumping of share collateral held by lenders has caused more than one dramatic collapse – most recently the 90 per cent fall in Huishan Dairy in less than an hour in March after a lender dumped collateral.
Worst of the bunch was China Jicheng Holdings, an umbrella maker, which was down 94.3 per cent and at one point fell as much as 96.4 per cent. GreaterChina Professional Services was next worst, down 93.4 per cent.
Other companies, such as civil engineering company Luen Wong Group Holdings, wine retailer Major Holdings, housing and construction services company WLS Holdings and plastic products manufacturer Amco United were all down, at one point, by more 90 per cent or more before recovering from that level.
Suffering the same fate were China e-Wallet Payment Group, investor Capital VC, China Properties Investment and China Investment & Finance Group.
The above companies were all singled out in a May blog post by David Webb, a Hong Kong-based independent investor, as among 50 Hong Kong stocks not to own. His post, titled “Enigma” charted a web of cross-holdings between the 50.
Asked about Tuesday’s share price moves, Mr Webb said there appeared to be “some kind of network effect going on” but was unsure what the precise cause might be. He suggested some investors may have received margin calls, or that some brokers in the network could have increased their capital adequacy ratios and were thus less willing to make margin loans on the stock.
Brokers pointed to the looming half year-end point at the end of this week as a natural spur for bankers to revisit loans.
Mr Webb said the sudden falls underlined his calls for the Hong Kong Exchange – the front-line regulator – and the Securities and Futures Commission, the overall watchdog to look at why the companies were investing in each other in the first place and how well they disclose those loans.
“We need to focus on the bigger issues about the gaps in rules and the weakness of the regulatory structure on the HKEX that allowed this to build up over the years,” Mr Webb said.
Avis/Hertz: oversteer
Two tech titans gallantly threw some crumbs at the depressed car hire sector on Monday. Noblesse oblige. Avis Budget and Hertz both rose 14 per cent on news of very different deals with Alphabet and Apple .
The rose-tinted view is that the arrangements secure Avis and Hertz’s place in a world where cars drive themselves, powered by technology from Alphabet’s Waymo unit, Apple and others.
Investors have become understandably — if perhaps prematurely — worried about impending doom for incumbent car-related businesses, from carmakers and their suppliers to rental, servicing and insurance.
Yet the Hertz “deal”, reported by Bloomberg, is tragically small. Apple, which is testing autonomous technology, will lease a handful of cars from Hertz. It requires great optimism to see this as a long-term boost to Hertz, whose shares had fallen 75 per cent in 12 months with revenues and profits under pressure.
Avis’s agreement, on the other hand, is more tangible but still provides little to justify an additional $300m of market value. Waymo, which already has autonomous cars ferrying passengers in a trial in Phoenix, will pay Avis to clean cars, change oil and rotate tyres. This non-exclusive deal is narrow, subject to change and presumably will do little to lift Avis’s stagnant revenues or weak operating margin, which was above 20 per cent 20 years ago and is now below 10 per cent.
Avis is focusing literally on the nuts and bolts. It is not to touch the really valuable bits — the lidar sensor and other technology that drives Waymo’s cars. And that may be illustrative of who keeps the value when the future business model evolves. A world where customers can jump in a self-driving car — rather than faff about with the queues, complexity and upselling, which are car hire companies’ speciality — does not bode well for a recovery.
Abengoa working to close Atlantica Yield stake sale by 30 June - report (translated)
27 JUN 2017
Abengoa [BME:ABE] is trying to close the sale of Atlantica Yield [NASDAQ: ABY] before the AGM next, Friday 30 June, Expansion reported without citing sources.
Abengoa is analysing two options: selling its 41% stake in Atlantica Yield directly to the funds vying for it or selling the stake in several blocks in the market.
Brookfield is one of funds eyeing the stake, according to the report.
The first option would have to include a discount over Atlantica’s stock market price, but would give the buyer control of the company even if it is not a majority stake, the Spanish-language paper noted. The second option is more complex, but is likely to earn Abengoa more cash.
Atlantica Yield has scheduled a steering committee this week and could also call its board of directors to decide the best selling option, Expansion said. The objective is to have the unknown resolved before Friday, when Abengoa holds a general shareholders' meeting.
Atlantia Yield has a market capitalisation of USD 2.16bn (EUR 1.93bn).
Abengoa announced the potential sale of its Atlantica Yield stake in February.
EU hits Google with €2.42bn antitrust fine
The European Commission ended its seven-year competition investigation on Tuesday, concluding that the search giant abused its near-monopoly in online search to “give illegal advantage” to its own Shopping service.
Brussels has hit Google with a €2.42bn antitrust fine for abusing its dominance in search, a decision with potentially far-reaching implications for both the tech sector and already strained transatlantic relations.
The European Commission ended its seven-year competition investigation on Tuesday, concluding that the search giant abused its near-monopoly in online search to “give illegal advantage” to its own Shopping service.
Margrethe Vestager, the EU’s competition commissioner, said Google “denied other companies the chance to compete” and left consumers without “genuine choice.
She added:
Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors. What Google has done is illegal under EU antitrust rules.
The company has 90 days to stop its illegal conduct and “refrain from any measure that has the same or an equivalent object or effect”. “The decision orders Google to comply with the simple principle of giving equal treatment to rival comparison shopping services and its own service,” the Commission statement said.
The Google probe is one of the most complex and politically charged ever undertaken by Brussels. Although the ruling orders Google to cease the anti-competitive practices, the precise changes required are expected to take months or even years to negotiate. Google can be hit with further non-compliance fines.
This Commission decision is the first time a major competition regulator has sanctioned the way Google operates and lays the foundations for cases about the company’s behaviour in other specialist search markets.
Kent Walker, Google senior vice president and general counsel, said:
When you shop online, you want to find the products you’re looking for quickly and easily. And advertisers want to promote those same products. That’s why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both. We respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.
Bain, Cinven in talks over potential new Stada offer - sources - Reuters News
27-Jun-2017 11:59:26
FRANKFURT, June 27 (Reuters) - Bain Capital and Cinven are speaking with investors - mainly with hedge funds - about the terms of a potential new offer for German generic drug maker Stada STAGn.DE after its first tender offer fell through, people close to the matter said.
Before launching a new offer, however, Bain and Cinven want irrevocable commitments from investors that they will tender their shares, the people said.
Cinven declined to comment, while Bain was not immediately available for comment.
Any new offer launched within a year would need recommendation from Stada's executive and supervisory boards and approval by financial watchdog Bafin.
Under Bain and Cinven's previous offer, investors representing only 65.52 percent of Stada's equity capital agreed to sell their shares, missing a 67.5 percent threshold. (Full Story)
The sources said that hedge funds held back some of their shareholdings, speculating on securing a higher price for any remaining shares after a successful initial tender offer.