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Analysis of companies with shareholders that are pressing for change
Thursday 30 Sep 2021 Author: Tom Sieber

The old adage is that you should never let a good crisis go to waste and this mantra seems to be being taken seriously by activist investors as we emerge from the worst of the pandemic.

Several big UK companies have activists either circling them or they are already on the shareholder register making demands of management. In this article we look at eight different activist situations and give our take on the credibility of the changes being pushed for and how likely they are to be achieved.

While data from shows the number of activist targets down globally on a year-on-year basis in the first half of 2021, in the UK there was a slight uptick from the first six months of 2020, though still short of pre-pandemic levels.

Activist investors vary by size and type, they can be private equity firms or hedge funds or sometimes even ‘lone ranger’ style individuals.

Targeting underperforming companies with misfiring management teams or businesses where the scope for a major strategic change is being missed, they will buy a stake in a business with the aim of leveraging this position to effect the change they want to see.

Once the fix has been delivered, the activists will typically sell their shares at a profit and ride off into the sunset.


Often activists achieve their goals, though not always, and investors who suddenly find such characters targeting a stock they own should sit tight and wait for the situation to play out given the chance of near-term value creation.

One criticism levelled at activists is they have too short a time horizon and this informs decision around areas like business investment which can have a negative impact in the longer term.

Research published in March 2021 by Mark DesJardine of Pennsylvania State University’s Smeal College of Business and Rodolphe Durand of HEC Paris looked at the performance of firms targeted by activist hedge funds since 2000.

They found a 7.7% uptick in company value in the year following targeting. However, they found the value of those targeted by activist hedge funds steadily dropped, falling 4.9% four years after targeting and continuing downwards five years after targeting.

Activists’ general modus operandi is to look for a seat in the boardroom through an agreement with the targeted company so they have a direct hand in company decision making.

Sometimes they will be more aggressive, particularly if faced by a lack of co-operation, looking to oust management entirely.

Among the most successful and high-profile activist investors is US-based Elliott Management, founded by Paul Singer, which achieved a notable triumph in getting Whitbread (WTB) to sell its Costa Coffee business, eventually snatched by Coca-Cola for £3.9 billion in 2018.

However, in May 2021 Edward Bramson and his Sherborne Investors (SIGC) vehicle abandoned a long-running battle to get rid of Barclays (BARC) CEO Jes Staley and force the lender to ditch its investment banking operation. Bramson sold his 6% stake without ticking off any of these goals.


AIM-quoted activist vehicle Crystal Amber (CRS:AIM) saw its share price slump between 2019 and 2020 and now it has been on the receiving end of a shareholder trying to shake things up.

Saba Capital Management, which has a 25% stake, has said it plans to oppose the company at a continuation vote in November which means there is a good chance Crystal Amber could be wound up.

The company seems to have struggled to create value at notable holdings like bank notes manufacturer De La Rue (DLAR) and oil firm Hurricane Energy (HUR:AIM), both of which have seen their market valuations slump significantly in recent years.

Other activist investors, or at least ones with an activist bent, whose own shares trade on the UK stock market include Dan Loeb’s Third Point Investors (TPOU) which, like its much smaller counterpart Crystal Amber, is being targeted by its own activist in the form of AVI Global (AGT).

Along with three other shareholders the Asset Value Investors’ managed trust is looking for Third Point to address an entrenched discount to net asset value.

Asset Value Investors also runs AVI Japan Opportunity Trust (AJOT) where its activist effort looks well aligned with a growing pressure for Japanese firms to be more shareholder friendly and improve their corporate governance.

The next big target for activists

Unilever £40.33

Food and household goods giant Unilever (ULVR), one of the largest stocks in the FTSE 100 index, has recently been touted as a potential target for activist investor Nelson Peltz, who previously lobbied for change at US peer Procter & Gamble after gaining a seat on the US firm’s board.

In fairness, it’s not hard to see why shareholders might want an activist to storm the castle. Since new chief executive Alan Jope, a Unilever ‘lifer’ who joined the firm at 18, took the top job back in May 2019 the share price has been less than stellar, falling from over £48 to under £40.

Compare this with the performance of Swiss arch-rival Nestlé, where Mark Schneider – the first ‘outsider’ to run the firm the firm in 100 years – has led a sweeping transformation of the business since taking the helm in 2017, resulting in a 60% rise in the shares from CHF 72 to a high of CHF 116 this summer.

Change is afoot at Unilever, although it is painfully slow. After the strategic decision was taken two years ago, this month finally sees the auction of part of the firm’s tea division, which includes leading brands such as PG Tips and Liptons.

Bidding is expected to be fierce, with several private equity firms along with the Abu Dhabi and Singapore sovereign wealth authorities jostling to own the business, which is estimated to be worth around £4 billion.

With tea demand waning in recent years in favour of coffee, selling part of the business is a good start in terms of refocusing Unilever on its core home and personal care brands. It also provides a cash pile to buy into faster-growing sectors such as skincare, where the company bought digital-led brand Paula’s Choice earlier this year.

However, shareholders are looking to activists such as Peltz to speed up the streamlining process. An obvious decision, following the disposal of most of the tea brands, would be to sell or demerge other parts of its food and refreshment division which includes iconic brands such as Bovril and Magnum.

Then there is the question of Hindustan Unilever, the firm’s separately quoted emerging market subsidiary whose shares have soared this year. Unilever’s 62% stake is worth roughly £40 billion, as flagged recently by fund manager Nick Train, around a third of Unilever’s total market value.

Selling a 10% stake, say, could raise over £6 billion or more than half as much again as the sale of the tea assets and still leave it with a majority stake to tap into its emerging market audience of two billion customers. [IC]

Companies already in play

Aviva (AV.) 404.1p

Activist: Cevian Capital

Any illusions on life insurance firm Aviva’s (AV.) part that it would have earned some breathing space from activist Cevian Capital after revealing plans to return £4 billion of capital to shareholders have been quickly disabused.

In fact the Swedish investor responded by upping its stake above the 5% threshold which will allow it to requisition shareholder meetings and have resolutions included at AGMs.

Aviva has already sold eight global businesses, netting proceeds of £7.5 billion, since CEO Amanda Blanc took the helm in July 2020. Before Blanc’s appointment her predecessors had delivered years of lacklustre returns.

However the £4 billion pledged to investors fell short of the £5 billion demanded by Cevian and it reiterated this call in the wake of the capital return being unveiled.

Cevian is also pushing for the insurer to go further and faster on slashing expenses – looking for it to take out costs of £500 million by 2023. However, the Stockholm-headquartered firm has struck a fairly conciliatory tone with Aviva.

On the assumption you catch more flies with honey, this constructive approach might make it more likely it achieves it goals. It seems management have got the message, after a recent meeting with Blanc and her CFO Jason Windsor, Berenberg analyst Kathryn Fear commented that both were ‘keen to highlight that there is more to come with regards to growth, cash and dividends’. [TS]

Clinigen (CLIN) 637p

Activist:  Elliott Investment Management

Elliott has built a 5% stake via derivatives in specialist pharmaceutical products and services group Clinigen (CLIN:AIM).

Clinigen is a global leader in supplying unlicenced medicines and was built through the merger of three different companies in 2010.

It isn’t clear at this stage what the activist is demanding but there has been speculation that Elliot is agitating for a break-up of the company.

Clinigen has been through a torrid 18 months which includes two profit warnings, a reorganisation of the group into two divisions and the departure of its non-executive chairman and chief financial officer Nick Keher after only two-and-a-half years in the job.

A former director of Jazz Pharmaceuticals, Elmar Schnee has been appointed chairman and non-executive director.

In the past the company has been criticised for operating disparate businesses which appeared to offer few operational synergies and where it was hard to see how they fitted into a coherent strategy.

Subsequently management divested non-core activities and simplified the group structure into a company with two divisions: products and services.

In the latest update (16 Sep) management refined its strategy once again, saying it would focus resources on its services division which is seeing strong demand and new contract wins.

Meanwhile the products division will be streamlined and simplified after being impacted by Covid-related delays to hospitalised cancer treatments.

The shares are trading on a low multiple (11 times forecast earnings) despite good growth potential for all the reasons outlined, but investors should be patient to see if value can be unlocked via a break-up or outright sale. [MGam]

GlaxoSmithKline (GSK) £14.15

Activist: Elliott Management

Elliott believes that GlaxoSmithKline (GSK) has a hitherto untapped ‘substantial’ value creation opportunity which it has identified and is willing to help shareholders extract.

The activist believes that with the right strategy and execution the business could be worth 45% more than the £13.40 it was trading at before its stake was purchased.

The main claim is that management have persistently failed to capture opportunities which has resulted in poor financial and share price performance. Elliott highlight that over the last 15 years the company has slipped being the third largest pharma company to eleventh.

While applauding management for initiating the separation of the pharmaceuticals (new GSK) and consumer healthcare divisions, Elliott wants GSK to add more scientific and biopharmaceuticals experience to the board ahead of the demerger.

Elliott do not believe that current chief Emma Walmsley is the right person for the job, but the board of GSK has reiterated its support for her to remain at the helm post demerger.

Just before going to press another activist investor Bluebell Capital took a €10 million stake in GSK and is pushing for change at the top, saying Walmsley should reapply for her job.

GSK has embarked on a significant four-year transformation to improve growth and profitability which it says has the support of major shareholders.

Shares believe that GSK has a good business with lots of potential for increasing value for shareholders. We think a combination self help and outside intervention should be a helpful in the long term. [MGam]

Sainsbury’s (SBRY) 295p

Activist: Vesa

There was a time, following its failed attempt to merge with rival Asda, when Sainsbury’s (SBRY) was among the most-shorted stocks in the UK market.

However, since the arrival of activist investor Daniel Kretinsky, the ‘Czech sphinx’, most hedge funds have closed their positions, with just a trio of investors left betting against it.

Krentinsky, whose Vesa investment fund controls 9.6% of Sainsbury’s shares as well as 40% of German supermarket group Metro, 5% of French hypermarket giant Casino and a 16% stake in Royal Mail Group (RMG), typically invests in businesses undergoing change.

The official line from Vesa is its investment in Sainsbury is a ‘strategic minority participation’ in a company it views as ‘attractive’, but true to his moniker we suspect Kretinsky likes to keep a veil of mystery around his actions while moving for change.

Interestingly, the firm hasn’t denied recent press reports suggesting it is in talks with a US private equity firm to sell its banking arm for £200 million.

Sainsbury put in a lot of work to make its banking business profitable during the pandemic, despite a drop in credit demand and an increase in provisions for potential bad loans, so now could be the time to cash in. [IC]

SSE (SSE) £16.52

Activist: Elliott Management

Given its track record, utility SSE’s (SSE) initial dismissal of calls from Elliott Management for a break-up of the business is unlikely to be the last word on the matter.

Elliott, which secretly built a stake in the business over the course of summer 2021, is reportedly looking for the company to spin off its renewable energy division from the more traditional thermal power stations and transmission grid business.

It’s not too hard to see the rationale behind Elliott’s push for a separation. According to Refinitiv data SSE trades on a May 2022 price to earnings ratio of around 18 times, a notable discount to Danish pure-play renewables firm Orsted which is on a forward PE of more than 30.

SSE has built the most substantial portfolio of renewable energy assets in the British Isles and, in the form of the 3.6 gigawatt Dogger Bank, is building the world’s largest offshore wind farm

However, some analysts believe the other bits of the business help make the overall group more resilient.

SSE hasn’t delivered a straight ‘no’, just that there has been no decision yet. Elliott is unlikely to be easily dissuaded but may sit tight until after SSE’s first half results on 17 November when it is set to deliver a big strategy update. [TS]

Superdry (SDRY) 281.5p

Activist: Gatemore Capital Management

Activist investor Gatemore Capital Management started building a position in Superdry (SDRY) in 2019, actively supporting the return of charismatic co-founder Julian Dunkerton as CEO and his plans to revitalise the fashion brand.

London-based Gatemore manages an activist strategy focused on turnarounds, recoveries and growth opportunities, principally across the UK and US. According to the Gatemore website, whereas most active managers focus solely on identifying value, its strategy ‘is based on creating value’.

At last count, it had a 6.31% stake in jackets-to-hoodies seller Superdry, famed for its Japanese-style logos, held through the Gatemore Special Opportunities Master Fund. Gatemore will doubtless be heartened by the evidence Superdry is battling back from the pandemic, though with the company still loss-making they are unlikely to let up on the pressure for improvement.

Recent results (16 Sep 2021) for the year to 24 April 2021 revealed a near-70% narrowing of adjusted pre-tax losses to £12.6 million on sales down 21.1% to £556.1 million.

Encouragingly, the sales recovery seen in the fourth quarter continued into the 18 weeks to the end of August 2021 as Covid restrictions eased and store sales rebounded. Store and wholesale revenues are recovering well despite continued subdued footfall, and Superdry’s e-commerce margin is benefiting from a return to a full price stance.

Much of Dunkerton’s work has been around rebuilding the integrity of a brand which had been squandered under previous management. But if his plan doesn’t deliver in the short term Gartmore might push for more radical action – this might, for example, involve a reduction in its relatively large store estate. [JC]

WH Smith (SMWH) £16.87

Activist: Causeway Capital Management

Currently calling for boardroom change at Rolls-Royce (RR.), US activist Causeway Capital Management has amassed a 9.28% stake in WH Smith (SMWH).

California-based Causeway clearly expects a recovery in global travel will revive the fortunes of the FTSE 250 books, magazine and snacks purveyor, which has been hit hard by the pandemic.

Causeway originally bought into WH Smith during its emergency cash call at the beginning of the Covid crisis and became the retailer’s biggest shareholder after upping its stake following a mild earnings alert (1 Sep).

Rather than pressing for change however, Causeway is a ‘firm’ believer in WH Smith’s strategy and management team and has ‘confidence in the long term growth potential of the business’.

That might change however. In its latest update, WH Smith warned profits for the year to August 2022 will be at the lower end of expectations due to uncertainty over the travel sector and accounting finance charges linked to a bond issue.

The good news is the retailer highlighted improving trends in its high street and travel businesses, with the latter dependent on a recovery in international airport and railway station footfall.

Assuming this recovery materialises Causeway might be minded to push for a separation of the travel arm from the structurally challenged high street division. [JC]

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