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While shareholder activism in Europe still hasn’t matched the levels seen in the U.S., investors and the public are becoming accustomed to the idea of shareholders agitating for changes at struggling companies.
“The train is running and it’s running one way,” said CIAM co-founder Anne-Sophie d’Andlau today at The Deal’s Corporate Governance and Activist Investing Conference. “There is no way around.” Paris-based CIAM is an activist alternative asset management firm.
The contrast between approaches to activism on both sides of the Atlantic was a recurring theme at the conference, held here in the financial capital of Europe. For a variety of cultural, legal and regulatory reasons, U.S. activists tend to be more confrontational than their counterparts in Europe and more likely to work in public. Nonetheless, the consensus among the panelists was that activist investing will continue to expand as regulators and the public become more comfortable with the strategies involved.
Gerrit Frohn, Head of Private Equity Corporate Finance EMEIA at EY, noted that as activists make stronger cases for their approach, acceptance becomes more widespread. “The public now sees that it’s not just about breaking up companies,” he said during the event’s leadoff panel, titled “Stay Informed: Tracking the Evolution of Activist Investing in Europe.”
In addition, “the homogenisation of shareholder bases,” is helping to push activism into new regions, according to David Rosewater, who leads the activism defense team at Morgan Stanley. Rosewater downplayed the differences between U.S. and European activists, noting that “Bumpitrage” and other aggressive tactics are already common in Europe. And, Rosewater said, most activists have largely abandoned their old swashbuckling ways. “Activists with slogans like ‘Surrender the Booty! – those days are past.” Rosewater was part of a panel titled “Stay Strong: How Companies Can Effectively Engage with an Activist During a Campaign.”
But because activists in Europe still work primarily behind the scenes, the pace of campaigns tends to be much slower. In the U.K. for example, activists and management first “engage in a dance” of negotiations, rather than go to war immediately, explained Richard Bernstein, founder of Guernsey-based Crystal Amber Fund. Bernstein spoke on a panel titled “Stay Focused: How Activism Plays Out at Small and Mid-Cap Companies.”
For any U.S. activists contemplating bringing the old slash-and-burn, media-first approach to Europe, Andrew Honnor has a warning. “This is such fun, it’s fun stuff. The media adore it. But you’ve got to be careful,” said Honnor, managing partner at Greenbrook Communications. Besides, an all-out media blitz often isn’t necessary; the mere threat of going public is a powerful tool.
In fact, Barington Capital founder James Mitarotonda, speaking on a panel devoted to explaining activist campaigns in the U.S. and Canada, said activists should prefer to work quietly. “We’re not always right, we need to be open to what [directors and management] have to say,” he noted.
Corporate executives would welcome that attitude. In one of the day’s keynote interviews, RPC Group CEO Jamie Pike urged his peers to learn the personalities and tendencies of activist investors and that some are more ornery than others. “Knowing your activist is key,” Pike said during an interview conducted by FTI Consulting Senior Managing Director Edward Bridges. Some activists, Pike added, are “not interested at all in listening to what management has to say.”
For CEOs confronted with an obstreperous activist, Pike had three pieces of advice: “First, don’t take it personally. Second, don’t take it personally. And third, don’t take it personally.”
Panelists at a session titled “Stay Ahead: How Boards Can Remain Proactive and Deploy Strong Governance & Leadership Initiatives,” differed somewhat on the value of diversity among directors. Amber Capital CEO Joseph Ourghourlian argued that women directors, for example, can “create an entirely new environment” by asking challenging questions. But Ken Lever, former Xchanging plc CEO and now a director on three boards, countered that just asking questions isn’t enough. Diversity works best, he said, when directors also help find the answers.
Attendees at the conference also heard keynote interviews with Gresham House CEO Tony Dalwood and Elliott Advisors’ Gordon Singer, who heads that firm’s London office. Both outlined their approaches to activist investing. In another session, James McNally, a London-based partner at Schulte Roth and Zabel offered a review of current legal and regulatory issues. The program also included a session covering proposed guidelines for communication between shareholders and supervisory boards in Germany.
The London event followed a similar conference staged by The Deal and parent TheStreet, Inc. in New York this past June.