This article was first published on Activist Insight Online on January 31, 2020. For more information about the product, click here.
Next week, shareholders in London-listed Stock Spirits will vote on a groundbreaking shareholder proposal by Luis Amaral’s Western Gate Private Investments for a special dividend. While activists have publicly called for dividends in the past, none have been put to a shareholder vote in the U.K. over the last decade, at least.
Western Gate, a 10% shareholder which has been engaging with the firm on and off since 2016, believes the proposal will allow shareholders to make their voices heard regarding the firm’s capital allocation and M&A strategy. The ordinary resolution was included in the company’s materials for the annual meeting, but the Stock Spirits board recommended against it. Moreover, the company said that “even if the resolution is passed, it would have no legal effect … and the company would not be required to pay the dividend,” because it is inconsistent with its articles of incorporation.
Although technically correct, this argument could raise concerns about the company’s corporate governance practices. Michael Henson, a senior consultant at Kepler Communications, believes it’s the “subtext” that matters. “If management and the board is taking this approach following a robust engagement with shareholders then the statement has merit beyond being just legally accurate. If, however, there has been no such communication with shareholders and the board is taking this position reflexively and defensively, then I find it troubling from an investor relations and governance perspective as it has all of the hallmarks of board intransigence,” said Henson, who advised Rolls-Royce in its engagement with ValueAct Capital Partners and Safran on its revised offer for Zodiac Aerospace, among others.
The company’s shareholder register is relatively concentrated, with the top eight shareholders owning more than half the shares. M&G Investment Management, an institutional shareholder who has engaged in activism, is the largest investor with 10.5%, followed by Western Gate and passive investor BlackRock. M&G declined to comment.
Francisco Santos, a Western Gate director, told me he spoke with other shareholders and most of them understand his worries. “I’d say that we are in the same boat.” In an emailed statement, the company said that it is “pleased” with the level of shareholder support for its “long-term strategy” and it engages in “regular and proactive dialogue” with all of them.
It also noted that a special dividend proposal has to pass as a special resolution, which requires the support of 75% of the votes to be legally binding.
Indeed, many U.K.-listed companies have the same requirements for proposals regarding dividends, making these resolutions a rare occurrence. Santos said there is no precedent of a shareholder submitting a formal resolution for a special dividend at a U.K. company, and his statement is confirmed by data from Proxy Insight back to at least 2009, when records began.
Activist Insight Online data also shows that return of capital has not been a very popular demand among activists. Since 2014, 14 U.K.-based companies were publicly subjected to requests for cash returns in the form of either dividends or share repurchases.
Santos is optimistic that Stock Spirits board will heed its shareholders. “If the resolution passes, the board cannot just say we cannot comply with this,” he said. However, Stock Spirits has history in making debatable corporate governance decisions. In 2017, Western Gate won two board seats in a proxy contest but the nominees were not allowed to sit on committees because they were deemed non-independent.
Elsewhere this week:
Starboard Valuenominated a slate of seven directors to the board of Merit Medical Systems.
Occasional activist 22NWasked the USA Technologies (USAT) board to step down, claiming Hudson Executive Capital’s slate garnered more consents from shareholders than the incumbent board.
Activist investor Elliott Management is reportedly building a stake in Finland-based tire-maker Nokian Renkaat, a week after the firm released its 2020 financial guidance.
French public investment bank BpiFranceraised several billion euros from private and sovereign investors for a fresh fund called Silverlake that aims to protect companies from activist investors.
Finnish lift manufacturer Koneteamed up with CVC Capital Partners to submit the highest offer for ThyssenKrupp’s elevator business. The company has been facing pressure from Elliott Management and Cevian Capital to break up, simplify its complicated corporate structure and generally improve performance.
Krupa Global Investmentsurged Swiss asset manager GAM Holding to seek out a strategic investor in order to stabilize and grow its assets under management or else the activist will advance a director nominee for GAM’s board.
A tender offer by French consultancy firm Capgemini for rival Altran Technologiespassed the first step after the firm acquired 53.6% of the shares, despite Elliott management’s resistance. To complete the takeover, at least 90% of the shares need to be tendered, the threshold allowing Capgemini to squeeze out the holdouts.
Asset Value Investorssubmitted a proposal for a higher dividend at Teikoku Sen-i, becoming the second activist to target the maker of disaster-prevention equipment.
Oil-rigging company Valarisreached a settlement with Luminus Management giving the activist a board seat and a place on its finance committee, heading off a threatened proxy fight.
Shareholders in Philip Falcone’s HC2said they plan to nominate a slate of directors at the communications services company due to weak financial performance.
Car rental company Avis Budget Groupapproved a one-year poison pill to stop SRS Investment Management from obtaining control of the firm, claiming the activist’s terms for a revised deal were unacceptable to its committee.
Gamco Investorssubmitted a shareholder proposal to declassify the board of National Fuel Gas, a resolution the company opposes.
Institutional Shareholder Services (ISS)advised shareholders in education software firm Instructure to vote against the company’s proposed take-private deal. ISS said the concerns raised by four activist investors that it undervalues the company were legitimate.
Next week, OncoSec shareholders will vote on the China Grand takeover. Activist investor Alpha Holdings urged fellow shareholders to vote against the deal, while OncoSec asked them to disregard an alternative bid from Alpha.
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