This article was first published on Activist Insight Online on August 15, 2019. For more information about the product, click here.
Although activism in general has slowed a little in Europe during the first half of this year, M&A-related activism rose from 10.3% of public demands in the first half of 2018 to 14.5% in the same period this year, according to data compiled by Activist Insight Monthly for the Half-Year Review. All data include the U.K., which has proved a hot spot for activism in 2019.
According to the data, nine companies were subjected to demands pushing for a transaction in the first half of 2019, eight were faced with opposition to a deal, and six were urged to break up.
Shopping for better deals
One of the many common M&A-related themes is pushing for better deal terms, also referred to as bumpitrage, after the “bump” in price that the investor is looking for. One such activist that has taken the strategy under wing is Elliott Management, which has opposed the terms of a takeover deal at 17 companies since 2011. Only last month the activist took a position in France-based Altran Technologies after the company agreed to a 3.6 billion-euro buyout bid made by rival firm Capgemini.
Elliott revealed in a July 8 regulatory filing that it has no intention of tendering its shares to Capgemini while Altran stock traded slightly above the agreed takeover price of 14 euros per share, suggesting investors see potential for another bidder to emerge or an activist to agitate for a higher price.
Squarewell Partners co-founder Louis Barbier explained to Activist Insight Online that this type of activism is now to be “expected and factored in when launching a transaction.”
Catherine Berjal, Charity Investment Asset Management co-founder, told Activist Insight Online, however, that this type of activism is not just coming from notable activist investment firms but also from shareholders that would normally be perceived as passive. “Shareholders are understanding that if they want to have a fair price, they have to be active,” Berjal explained. “It is good because companies are going to be careful [when making a deal].”
Sell for a fresh start
While bumpitrage is a trend on the rise, other activists have hiked up the pressure on companies to sell themselves. Only two months after Cat Rock Capital Management asked U.K. food delivery firm Just Eat to lay out a three-year plan of it’s potential, properly incentivize management, and sell the company’s stake in iFood and other non-European assets, the activist began urging the company to begin merger talks.
Although Just Eat announced improving revenues and earnings for 2018 and projected a jump in margins for 2019 in March, Cat Rock persisted and on July 29 the company announced it had entered into an agreement to be acquired by Takeaway.com.
Barbier said situations like Cat Rock’s at Just Eat could be becoming more popular because the type of campaign is “shorter in horizon, need less preparation, and may prove to be less costly for activists,” when compared to traditional activism dealing with board, operational, and strategy-related issues.
The most notable M&A-related campaigns of the year so far, however, have been a spinoff or a break up of a company, with Elliott again a frontrunner. The activist first dipped its toes into French waters at the end of last year when it disclosed a 2.5% stake in spirits group Pernod Ricard in December 2018. Elliott began pushing for improvements to margins and corporate governance while suggesting Pernod consider selling off underperforming assets and merging with another large spirits company.
Although the company pushed back against Elliott at first, the company said it had “the firm intention to continue to actively manage its portfolio, in terms of either selling or buying,” and retained JPMorgan and Morgan Stanley to sell its wine unit.
Elliott also found success at Whitbread where the activist joined Sachem Head Capital Management in its calls for a break-up last year. By the end of the year, Whitbread agreed to sell its coffee business Costa to The Coca-Cola Company for 3.9 billion pounds. Elliott was not done, however, and in May 2019 began pushing Whitbread to divest between 10% and 15% of its Premier Inn property portfolio. The company has remained resolute in its strategy to grow the brand.
Elliott decreased its stake in Whitbread to below 5% but jumped into action earlier this month at Scout24, calling on the German classifieds company to divest its car listings division and increase its share repurchase plan. Eight days later, the company said it would review strategic alternatives for its car trading platform, six months after rejecting a 46-euros-per-share takeover offer by private equity groups Hellman & Friedman and Blackstone.
“Activists are more willing to split assets to have a better evaluation of the company,” Berjal explained. “This is interesting as Europe has thus far not been a playground for that. We can see that it’s the beginning of something.”
Another company to be confronted with M&A arguments as well as governance issues was Suez, where Amber Capital called for a strategic “reset” through the sale of mature assets and investments in new projects. The activist accused the company of “years of limited portfolio management,” arguing that assets need to be divested and the proceeds reinvested to deleverage and buy back shares.
Geographic upper hand
While Berjal sees the tactics as typically American, she believes an activist investor usually has to be based in Europe to do well in Europe. “You need to understand the network, how it works, where you can go, the people, where the possibilities are, and purely U.S.-based firms are not able to do that,” she explained. “A network is not just shareholders but proxy fighters, experts, press, or what you need to have a campaign organized so well that you can win.”