Monthly Activism Snapshot – February 2017

Welcome to the February issue of our newsletter on shareholder activism. Read all about the key activist campaigns that took place in this month’s issue of our newsletter here.

The Month in Review

Largest Arconic shareholder seeks to oust Kleinfeld as chief

Elliott Management, the activist investment group, has called for the removal of Klaus Kleinfeld as chief executive of Arconic, the specialist metals and components company created last year by the break-up of Alcoa, arguing that “current management’s persistent failure…has destroyed considerable shareholder value”. Financial Times, 1st February 2017

European investors warm to activism

Activist investors in Europe are getting bolder and becoming more assertive in the way they deal with companies, following the example of their US counterparts. They are also benefiting from changing attitudes among other shareholders. Financial News, 8th February 2017 

Shareholder revolt called against Franklin Templeton

An influential adviser to big investors has called for a revolt against Franklin Templeton at the company’s annual meeting, piling further pressure on the emerging market specialist. Pirc, which advises investors with combined assets of more than £1.5tn, has highlighted “excessive” pay and a lack of director independence at the fund company in a document recommending how pension funds and asset managers should vote at the company’s meeting. FTfm, 12th January 2017

Investors plan tougher action to tackle excessive corporate pay

Several of the world’s most powerful shareholders are planning to take even tougher action on excessive bonuses for company bosses in 2017 after investor protests over executive pay reached a five-year high last year. Large investors including Fidelity International, Aberdeen Asset Management, Calpers, Standard Life and Henderson Global Investors said that they are planning to crank up pressure on boards to reduce excessive pay and introduce greater transparency in 2017. Financial Times, 13th February 2017

Watch your step: Shareholder activism is on the rise and UK companies are among the most vulnerable

New research has identified the UK as one of the most at-risk countries for shareholder activism. Outside of the US, the dominant market for activism, the UK, Canada and Australia have been judged to be vulnerable because of the strong US dollar, undervalued asset prices and “increased global scrutiny of corporate governance standards”. City A.M., 15th February 2017 

Tiffany agrees board shake-up after activist pressure

Tiffany has reached a deal with activist investor Jana Partners to appoint three independent directors to its board and oversee the search for a new chief executive after a difficult time which has seen the luxury jeweller report sales declines in seven of the past eight quarters. Financial Times, 21st February 2017

Safran hits back at TCI’s campaign to stop Zodiac takeover

The French jet engine maker has accused one of Europe’s largest activist hedge funds of wanting to “destroy value” in its attempt to scupper an agreed €8.5bn takeover for rival Zodiac Aerospace. Safran’s management said TCI was making “baseless” claims, and cast doubt on the fund manager’s understanding of both French corporate governance laws and the aerospace industry. Financial Times, 24th February 2017

The Big Picture

Siemens beats activist investors at their own game

Boss Joe Kaeser has carved out businesses, cut red tape and lifted payouts, all without outside pressure from militant shareholders. The group’s impressive quarterly results and a better 2017 outlook vindicate the approach. Yet valuations have yet to reflect his success. Breakingviews, 1st February 2017 

Sports Direct’s French Connection flutter looks like a fashion faux pas

Sports Direct’s Mike Ashley and French Connection’s Stephen Marks both don’t enjoy being told how to run their business. Thus excellent entertainment could be in prospect now that Sports Direct has bought control of an 11% stake in the struggling fashion chain. The Guardian, 2nd February 2017

Elliott Misfires on Arconic, But It’s Not Wrong

Elliott Management may have fumbled on its campaign against aluminum-parts maker Arconic, but CEO Klaus Kleinfeld still has some explaining to do. Arconic split from its mining and smelting business last year, a move Elliott backed. But the activist hedge fund said it was nominating five candidates to Arconic’s board and calling for Kleinfeld to be replaced with a CEO better suited to cut costs. Bloomberg Gadfly, 7th February 2017

A costly own goal by Thomas Cook

The travel group’s board suggested a new strategic share incentive plan (SSIP) paying up to 225% of chief executive Peter Fankhauser’s salary as a bonus. Shareholders refused the plan after the board failed to provide sufficient information on exactly what strategic objectives would be selected to gain from the plan. The decision saw the board amend the SSIP to include specific targets and a 200% cap – should it ever be put in place. The Times, 10th February 2017 

Stada/Cinven: strong medicine needed

Stada barely earns its cost of capital on its investments. One shareholder, Active Ownership Capital, clearly thinks cost cutting should be prescribed. Since the activist took a stake last summer, the chairman has been replaced. Stada has promised to trim the cost of sales by €65m by 2020. That will not lift profits much. Other generic makers do a better job. FT Lex, 14th February 2017 

Snap and the 21st century governance vacuum

In an era when innovators are prized, fewer investors are able to hold management to account. Today’s many high-tech entrepreneurs, including the founders of Snap, the Californian company that runs the popular mobile messaging app Snapchat, are adopting disdainful attitudes towards shareholders. Financial Times, 22nd February 2017

Fund cannibalism is a chewy meal for activists

Asset manager GAM has been urged to shake up its board by an activist fund. The Swiss group’s performance and governance make it vulnerable, but fund managers are tricky targets: the industry’s fee structure is challenged, costs are high, and regulators demanding. Breakingviews, 27th February 2017

The Month in Numbers

€65 m The amount Stada promised to trim off the cost of sales by 2020, FT Lex

11% The stake Sports Direct bought in French Connection, The Guardian

225% of salary — the bonus Thomas Cook’s board proposed to pay CEO Peter Fankhauser, The Times