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2018 saw a boom in M&A transactions, which of course caught the attention of activist investors. Worldwide, 55 companies were subjected to activist demands opposing a transaction last year, according to data from Activist Insight Online. With Starboard Value’s opposition to the merger of Bristol-Myers Squibb and Celgene now the largest activist campaign of 2019, the pressure on companies considering deals is intense.

Cashing out

In an email to Activist Insight Online, Schulte Roth & Zabel partner Aneliya Crawford argued that the reasons activists attempt to block transactions are changing. Reactive M&A activism used to be about trying to push for a higher price but activists are now adopting “a more holistic approach to announced deals,” according to the lawyer. “They analyze alternatives, consider corporate governance effects, challenge operational synergies and overall rely on sophisticated value analysis of a wide range of options in the marketplace.”

The Activist Insight Online data suggests only 49.3% of these demands were at least partially successful, with the rest either unsuccessful or withdrawn. According to Lazard’s Head of Shareholder Advisory, Jim Rossman, “many deals go through because you frequently see an adjustment to deal terms. It’s hard to scuttle a transaction, it’s easier to bump the price.”

Nonetheless, Crawford told Activist Insight Online that she suspects it is tough for activists to convince shareholders to “vote against a good opportunity to cash out on the chance for a better one,” because they are usually happy to accept the lower risk option. Crawford said that companies know shareholders work like this and so “are not overly eager to renegotiate the terms of a transaction to secure the vote they need.”

Shareholders often choose to bless deals unless given cover to dissent by proxy advisers, as at Cigna last year, when Carl Icahn’s opposition to the acquisition of Express Scripts melted away after Institutional Shareholder Services and Glass Lewis recommended in favour of the deal. Even so, a small bump in the bid can sway opposition, as happened at Dell and AmTrust Financial Services.

Regulatory hurdles

On the other hand, European activist Charity Investment Asset Management (CIAM) co-founder Anne-Sophie d’Andlau told Activist Insight Online that in Europe, many activists fail at blocking a transaction because it is such a large-scale opposition that goes against the board, the management, and regulators. According to the activist, European regulators are more likely to support a corporate decision than oppose it, even if the offer is detrimental to minority shareholders.

D’Andlou did, however, note that regulators could be evolving to be more friendly towards minority shareholders, occasionally blocking offers. For those that don’t, the activist told Activist Insight Online that the combination of legal action and a widespread public relations campaign could force buyers to increase offers to make the problem go away. “Our experience shows that there are other ways to go around a regulator,” said the European investor.

Standing their ground

In Continental Europe, higher thresholds for delisting allow activists to rally blocking positions in stocks. Parmalat and XPO Europe are just two companies that have failed to squeeze out minority activists following campaigns by Amber Capital and Elliott Management, respectively.

Starboard still has a long way to go at Bristol-Myers but the support of Wellington Asset Management – a traditional institutional investor and first-time activist – has galvanized its campaign and was one of the talking points of the Tulane M&A Institute last week.

According to d’Andlou, an activist’s goal is to “convince other shareholders that the offer on the table is not the right offer and should be opposed.” In the activist’s experience, long-term shareholders do not want to oppose management but “more and more big institutional investors are realizing they have to be more proactive in the way they manage their holdings and investments so going forward they might oppose more and more transactions.”

Rossman seems to agree, telling Activist Insight Online that the bank has been predicting traditional global asset managers are increasingly expressing their view, either publicly or privately, since June last year. “We tied it to Procter & Gamble,” he said, citing the uncertainty during both the campaign and in the narrow margins following the vote: “months and months of time and resources tied up for a Brexit-type result.”