On 21 October IR Society hosted the webinar, ‘Navigating shareholder activism in the era of COVID-19’, where we heard from our moderator, Georgeson, and panel of experts about how activism has evolved, the role the pandemic is playing in highlighting opportunities for activism, and how companies/IROs should think about their engagement with activist funds.
Activism is everywhere – now a common viewpoint contrary to previous assumptions that it was mainly a US phenomenon. Very often you see that the activism is not advocating radical new changes. Instead, they often have longer term perspectives like for instance eliminating dividend payment for long-term growth plans and investment instead of just taking out dividends and exit the share.
In the UK there have so far been 27 cases of activism in 2020 which is down from close to the double number – probably due to the crisis as especially April till July have been quiet. Now the number is going up to its ‘usual’ levels across mixes of sectors, issues, management, financials and M&A activism, i.e. back to focusing on core business areas.
Still, you see a big difference between value and growth stocks. So, what are the activists looking for? Primarily, good companies not doing well under the covid-19 crisis and suffering a general downturn. To get more shareholders on board, they offer a bounty to other shareholders as a reward for coming forward and supporting their campaign for instance to replace board members. Many activists engage in campaigns with proxy voting and governance contacts – especially institutional investors working from home where they do not have access to as much information as they used to.
M&A activism is growing, and players now consist of a wider audience as there are quite big returns to gain from these kinds of challenges. You see more campaigns now in the European market (e.g. G4S) in which activists push for spin-offs or M&A (presently 13 campaigns). Prior to the public campaign, a whole raft of work and negotiations has been underway, which is frustrating for companies when activists come forward trying to push forward the pace of change. This may come at a bad time from a company perspective.
A new form of activism growing out of the USA is the social side of the governance aspects and not just the E and G in general. This ESG agenda is being accelerated and is spreading to all companies and not just the usual suspects (e.g. mining companies, oil companies). This also goes for small and midcap companies.
It is recommended that IR prepare Q&A to the potential issues’ activist might address knowing how well the shareholder register is aligned. Keep ahead of what actions activists might be interested in and ensure good engagement with your investors. Understand their positions or changes which is harder now due the lack of meetings and roadshows. Have a checklist of what the activists normally ask for (previously most activists asked for increased dividends, now the trend is to ask for a decrease). Do your homework before you scheduled talks as they will try to push the boundaries trying to get extra information out of you, and they can be quite aggressive. Finally, observe that is very rare that they buy your share before talking to IR or management so keep an eye on the order book and review on an ongoing basis. Best to deal with them on the phone instead of sending e-mails back and forth.