Shareholder activism evolves

As activist campaign numbers fluctuate, activists are looking at new geographies and adopting a broader palette of strategies to sustain deal activity

Shareholder activism has grown significantly over the last decade. Activists are now key players in orchestrating high-profile public company deals and are targeting large companies in order to reduce downside investment risk and provide more predictable returns.

There were 128 new activist shareholder campaigns launched in North America in H1 2019, down slightly from the 146 campaigns launched in H1 2018, according to data from Acuris publication Activistmonitor. There was a similar dip in the number of new campaigns launched in Europe, from 38 launched in H1 2018 to 29 in H1 2019.

Although the number of new campaigns in H1 is slightly down in the US and Europe compared with H1 2018, shareholder activism activity remains robust, with larger companies being targeted, new strategies deployed and increased convergence amongst investors.

Japan saw a slight increase in campaigns in its proxy season ended June 2019, based on data from a variety of sources including White & Case’s research on public beneficial ownership filings in Japan.1 However, more than recent economic trends, we would think this marks a continuation of the trend of increased activity in Japan since adoption of its corporate governance and stewardship codes.

Japan has gone from a non-factor to becoming Asia’s most active market in recent years, jumping more than five-fold between 2013 and 2018 based on data cited in the Activist Investing Annual Review.

Larger targets

Although overall activist campaign activity has dipped this year, campaigns targeting large companies have remained steady. In North America, for example, there were 19 new campaigns in H1 2019 targeting companies worth US$10 billion or more, only slightly down from the 21 such campaigns launched in H1 2018. This represents a sharp rise on the six such campaigns launched in H1 2016.

The trend towards campaigns targeting larger companies can also be seen in how the number of non-13D campaigns has increased, from only 47 campaigns in H1 2016 to 70 in H1 2019 (slightly down from the 77 in H1 2018). With larger targets, activists are less likely to be able to build stakes large enough to trip the 5% shareholding threshold past which the SEC requires filing a 13D disclosure.

Figures for European activist campaigns in larger companies do not always capture all activity, as activists recognize that they can make more progress by holding private discussions rather than coming out with public demands from the outset. Activistmonitor has recorded five potential European campaigns in H1 2019 where there are signs of activism but no public demands as yet.

Japan has seen a continued increase in its large shareholding reports that cite an intent to make material proposals to management, a key signal of potential activist intent. Like 13Ds, these reports need only be filed by those shareholders who trip a 5% shareholding threshold, but Japan’s market has a much larger number of small listed companies than the US, meaning more bite-sized targets for activists remain available.2

Examples of the growing role activist shareholders are playing in big corporate strategy include Starboard Value joining Bristol-Myers Squibb’s largest shareholder, Wellington Management, to oppose BMS’s US$89.5 billion (including net debt) acquisition of Celgene—one of the largest pharma M&A deals in history.

New strategies

In addition to adapting to constrained deal flow by focusing on larger companies, activists have spread the scope of their demands more evenly across agitating for bolt-ons, divestments and mergers in addition to explicit “sell” statements.

The proportion of live campaigns in North America that included a demand for major strategic alternatives, with explicit “sell” statements, has fallen back to around 12%, as it was in H1 2017 and H1 2016, after rising to 16.4% in H1 2018. In Europe, 4% of open campaigns included demands for major strategic alternatives including mergers in H1 2019, compared to 6% in H1 2018.

The proportion of North American campaigns which included a demand for bolt-on acquisitions or asset sales has increased over the past few years—5.2% of live campaigns in H1 2019 included such a demand, up from 2.4% in H1 2018 and 1.7% in H1 2017. In Europe, 5% of open campaigns included demands for bolt-ons, divestitures or spin-offs in H1 2019, in line with the 6% in H1 2018.

During a period of constrained activity, activists have also focused more attention on particular companies, making more demands across a smaller pool of assets. London-based Petrus Advisers, for example, launched only one campaign in H1 2019, at Ophir Energy, but was among the most demanding activists with seven demands from all ongoing campaigns.

Activists have expanded geographically in order to originate more opportunities too. Europe, for example, has in the past few years seen an influx of US activists searching for more targets. Elliott Management has built up positions in SAP, Bayer, Thyssenkrupp and Scout24, all within the last 18 months. The level of indebtedness of European corporations and a perceived lack of shareholder scrutiny have drawn the attention of activists. The same may be said for Japan, though locally focused activists seem to remain the most frequent participants in public campaigns.

Strategic convergence

Elliott’s activism at German online classifieds business Scout24, where it has called for a break-up of the company’s car trading and property websites, also highlights the convergence between activist, private equity and long-only investment strategies. All three have large capital pots to invest, and are adopting elements from each other’s playbooks and even pursuing the same targets. Prior to Elliott’s disclosure of its stake in Scout24 in early August, for example, private equity groups Hellman & Friedman and Blackstone had attempted to take the classifieds business private.

Buyout firms are becoming more comfortable with taking minority stakes and take-private activity is up, moving them closer to activist territory. Activists, meanwhile, are increasingly open to doing whole company takeovers, with Elliott buying no fewer than nine companies outright. “Traditional” equity fund investors are also borrowing activist tactics, taking seats on company boards and opposing boards on certain actions. Wellington Management, BSM’s top shareholder, made the rare move of publicly announcing of its opposition to the Celgene acquisition.

Despite cooling activity this year, activist investors have arguably become more influential and sophisticated as they expand into new geographies, exert pressure over larger businesses and adopt a wider range of investment strategies and tactics.

1 White & Case alert, “Japan's 2019 Proxy Season Results Announced (Shareholder Activism Update)”, September 12, 2019.
2 White & Case research cited in the above-referenced client alert.

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