With the dealmaking environment facing unforeseeable challenges – and the SEC making the biggest batch of changes to its cross-border in years, practitioners are grappling with how these deals will now change. Learn from these experts how cross-border deal practices are evolving and how they differ from the past in tomorrow’s webcast, “Implementing the New Cross-Border Rules“:
– Christina Chalk, Senior Special Counsel, Division of Corporation Finance’s Office of Mergers & Acquisitions
– Frank Aquila, Partner, Sullivan & Cromwell LLP
– Peter King, Partner, Weil, Gotshal & Manges LLP
– Alan Klein, Partner, Simpson Thacher & Bartlett LLP
– Greg Wolski, Partner, Ernst & Young LLP
Analysis: Local Ownership and Fund Activism in Europe
From Nelson Seraci, RiskMetrics’ M&A Edge Team as posted in RiskMetrics’ “Risk & Governance Weekly“:
Activist shareholders should study a potential target company’s shareholder registry if they hope to be able to effect change. With an unreceptive shareholder base, even sensible campaigns will be ineffective, wasting significant investments in time and money. Because most activist funds are based in either the United States or the United Kingdom, they face particular challenges when seeking to win the hearts and minds of local shareholders who may have a very divergent philosophical approach to investing.
In some countries, it appears that local institutional investors follow unwritten rules of conduct, which in essence prevent them from supporting outspoken dissident hedge funds. For example, U.K. dissident Algebris attracted less than 4 percent support at Italian insurer Generali in April. U.S. and U.K. investors, who are arguably more open to dissident proposals and willing to be “active,” represented a mere 2.9 percent of the shares outstanding. The fact that asset managers are often owned by banks, and the prevalence of cross shareholdings and cross-directorships make it difficult for hedge funds to achieve traction with local investors.
Many non-U.S. and non-U.K. institutional investors do not vote at shareholder meetings outside of their home countries. In many instances, proxy contests and other shareholder proposals end up being decided by investors from the U.S. and U.K. and local investors. Moreover, the low turnout at some international shareholder meetings (50-70 percent of shares outstanding for most contentious meetings) amplifies the voting importance of U.S. and UK shareholders.
A review of M&A Edge data on proxy fights and shareholder proposals indicates that the level of support achieved by activists in international markets is correlated with the relative percentage of shares owned by the activists and U.S. and U.K. investors. Although local “partnerships” certainly help–Colony Capital’s association with French investor Arnault is an example–U.S. and U.K. ownership appears to be critical in executing a campaign. Otherwise, activists face a delicate balancing act between diluting their proposals to make them more palatable to the local audience, while at the same time ensuring their proposals remain value-creating.