After buying big US brands like Apple Inc, PepsiCo Inc and Yahoo Inc, activist shareholders — investors in search of big dividends, or “activists” — are now setting their sights on European companies like Nestle SA.
“No company is really immune from activism except perhaps for the very largest companies,” said Gregory Taxin, managing director of Spotlight Advisory, a consulting firm for activists.
Activists’ favored targets are “companies that have a lot of cash that haven’t been returned to shareholders,” Wachtell, Lipton, Rosen & Katz corporate attorney David Katz said.
In announcing plans last week to buy US$3.5 billion of Nestle shares, US billionaire Daniel Loeb revealed the European ambitions of these investors with bulging wallets, who say they want to restore power to shareholders.
In addition to cost-cutting, Loeb is asking Nestle to sell its historic stake in L’Oreal SA in order to boost the share price and dividends.
“L’Oreal has been a fantastic investment,” Loeb’s spokeswoman Elissa Doyle told reporters. However, it is “a non-core investment for a primarily Food & Beverage and packaged goods business.”
In the wake of Loeb’s move, Nestle announced the acquisition of US$21 billion of its own shares, which should boost the stock price.
However, Katz said: “I do not know if this will be enough to remove the pressure.”
Loeb is not the first US activist to go after a foreign giant. His compatriot Nelson Peltz, through his investment fund Trian Partners, holds a stake in the French yogurt maker Danone SA. And Paul Singer has invested, via his Elliott Management fund, in South Korea’s Samsung Electronics Co, the Australian-British mining group BHP Billiton and the Bank of East Asia Ltd (東亞銀行).
All want the same thing: quick returns on investment by requiring cost-cutting, asset sales or share buyback programs. When they do not succeed, activists usually engage in high-profile media campaigns — and they often win.
More than 2,900 activist campaigns have been recorded in the US since 2010, including 645 last year alone, according to FTI Consulting.
Most sectors of the economy are affected, but “the US market remains crowded and generally overvalued, [so] activist investors will continue to focus their sights on foreign jurisdictions, including not only Europe, but Australia and Asia as well,” said Andrew Freedman, co-head of the Shareholder Activism group at law firm Olshan Frome Wolosky.
“The type of corporate self-reflection occurring in the US is happening to a much lesser degree in Europe, leaving more opportunities at European companies for activist investors to catalyze value creation,” he said.
Dan Zacchei, one of the leaders of Sloane & Co, a firm advising activists, said Europe is attractive because of friendly laws, and because many companies do not have deterrent measures against potential predators.
“European companies have less stringent corporate defenses and may be more shareholder (or in this case activist shareholder) friendly,” he said.
The Continent also is in the midst of political stabilization, with the start of negotiations on Brexit, while in the US there remain questions about the major reforms — tax cuts and infrastructure investment — promised by US President Donald Trump.
However, to succeed in Europe, activists will have to deal with strong trade unions and government interventions, which is rarely the case in the US.
“Activist investors do not invest in a company to immediately go hostile or start a proxy contest. Their hope is for a real, behind-the-scenes dialogue with receptive management and to only escalate the situation publicly if the company is unwilling to engage or consider recommended change,” said Freedman, whose law firm has set up an action plan to help activists in their campaigns in Ireland, the UK and France in particular.
Zacchei cautions that communicating their goals to pension funds can pose a real challenge for these investors, who need to understand what issues they care about most.
“It’s not dissimilar to a political candidate from the [US] northeast having to find a way to connect with voters in the heartland,” he said.
Even that may not be enough. The Elliott fund recently failed to convince the Dutch group Akzo Nobel, in which it has become a shareholder, to merge with the US’ PPG Industries Inc, despite its pressure.
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