Activist Insight Online understands that the broad shareholder base in German industrial firm Bilfinger is supportive of current management and its strategy in light of criticism from ENA Investment Capital. Several top 10 shareholders have expressed their support for the company’s current directors, with one saying the letter from ENA appears “quite short-termist.”

ENA, an investment firm founded by former Morgan Stanley Managing Director George Kounelakis, criticized Bilfinger for putting off its 5% operating margin target by one year to 2021 and called for an asset portfolio reshuffling, share buybacks and an increase in leverage. The letter, published days before Bilfinger’s Capital Markets Day on February 13, demanded that the company shed more light on how it plans to reach its operating margin target.

For 2019, Bilfinger reported an operating margin of 2.4%, an increase of 800 basis points over the prior-year period. Its international and European engineering and maintenance segments have both reported strong results, including decent growth and operating margins of 3.7% and 4.6%, respectively. However, the technologies division reported a loss, pushing the overall margin down. The company expects its margin to edge up to 4% in 2020 and 5% in 2021, largely thanks to an expected “substantial improvement” in the technologies unit.

ENA believes the firm should consider a strategic review for technologies, noting “recent repeated execution issues” and lack of synergies with the rest of the business. Bilfinger has indicated that it plans to stick to the segment and pursue a restructuring in “loss-making entities.” It expects the unit will break even in the fourth quarter of 2019 and become profitable in 2020.

Some ENA recommendations are already being considered by management, while others appear “reckless and irresponsible,” a top 10 shareholder told Activist Insight Online. For instance, ENA’s suggestion that the company commit to returning capital from the sale of Apleona to shareholders. Reuters recently reported that EQT might sell Apleona and Bilfinger could receive 49% of the resale proceeds, as part of the 2016 agreement under which Bilfinger sold Apleona to EQT. Bilfinger has no control over the sale of Apleona and committing to a return of the hypothetical proceeds could lead to lawsuits against directors, a source close to the situation told Activist Insight Online.

A spokesperson for ENA declined to comment.

Despite notable progress on the turnaround launched in 2016 by CEO Tom Blades, Bilfinger’s stock price has largely languished. Shares have declined nearly 14% over the past two years, and they are down more than 40% for the past five years.

“The objective of our work is to create value for all our stakeholders, and especially for our shareholders,” a spokesperson for Bilfinger told Activist Insight Online.

ENA first disclosed a 5.4% stake in August 2019 and increased it to 10.3% in September, according to regulatory filings. ENA has no voting rights as its stake is held in financial instruments.

Activist investor Cevian Capital is the largest shareholder with a 26.8% stake, and its partner, Eckhard Cordes, serves as chairman of the board. Frankfurt-based Union Investment and M&G Investments each own a 5% stake. Oddo BHF Asset Management, Swiss investment firm BWG, and Unideutschland are also among the firm’s top 10 shareholders.