Shareholder Activism Small Listed Companies Interest Group of the CGI January 2020
Shareholder activism set records for the number of campaigns in 2018/19 in the UK, and for the success of these initiatives. Boudicca professionals will share experiences of working on the majority of activist shareholder situations in the UK over the last five years. They will explore trends, the direction they expect activists to take and what we can expect to see for small listed companies in 2020. 2 | Equiniti Group plc 2020
Great to be here with you today 1. About Boudicca 2. Shareholder Activism Trends 3. Top Tips for Winning 4. The Future of Shareholder Activism and Q&As Adam Rose Appendices - Case Studies Head of Corporate Governance 3 | Equiniti Group plc 2020 | Confidential.
Session Overview At this event, we will look over the impact of shareholder activism specifically in small listed companies and how boards can and should respond. This session will help you to: ▪ Recognise the key activist trends and whether any regulatory changes have given power to activists including: ▪ Stricter investors’ voting policies; and changes to regulatory and advisory frameworks ▪ Understand the impact of recent shareholder activism and key players like the proxy advisers ▪ Develop proactively develop steps your board can take to avoid activist attention ▪ Shape a response to shareholder activism at your company 4 | Equiniti Group plc 2020 | Confidential.
1. About Boudicca 5 | Equiniti Group plc 2020 | Confidential.
Analysis of 500 24/7 More Than Multi-Level 200 Years 6,000 Shareholder Combined Global AGMs, Specialist Experience Engagement EGMs and M&A Support Transaction Shareholder Meetings 2019 104 Mandates We are a specialist shareholder engagement • 65 AGMs advisory firm, focused on maximising shareholder • 21 M&A votes through progressive proxy solicitation and • 12 Activist corporate governance / remuneration advice • 6 EGMs 6 | Equiniti Group plc 2020 | Confidential.
ONE GLOBAL SPECIALIST GOVERNANCE ADVISORY FIRM Amsterdam | Chennai | Krakow | London | Minnesota | New York RD:IR Acquisition (September-19) BOUDICCA Acquisition (May-18) UK-based global Investor PRISM COSEC Acquisition Relations consultancy offering (November-12) UK-based specialist shareholder wide range of services including Corporate governance and engagement company providing In-house launch of EQIA shareholder analysis, IR CRM company secretarial services Proxy Solicitation & Shareholder and other consultancy services • provider Communications EQIA launched with own Shareholder analysis solution in 2009 • EQIA outsourced tech using Miraqle platform (now owned by Link) in November 2012 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 7 | Equiniti Group plc 2020 | Confidential.
Client Base • Boudicca has an extensive client base and in 2019 supported 100+ Corporate clients across the FTSE • #1 UK Proxy Solicitor for Activism - Boudicca has worked on the highest number of UK Takeover Panel M&A transactions since 2017, providing proxy solicitation services to 50+ deals valued at $100Bn+. • The Boudicca team worked on 23 Activism Mandates in 2018-19, with an 87% success rate, including: ► for activist shareholders such as: Elliott Advisors (vs several targets), Western Gate (vs Stock Spirits), Oasis Capital (Premier Foods), LIM Advisers, Julian Dunketon (vs SuperDry) and ► supported issuer clients to defend themselves from Activist approaches including: Barclays; De La Rue; easyJet; FirstGroup; GKN and Just Eat. 8 | Equiniti Group plc 2020 | Confidential.
2. Shareholder Activism Trends 9 | Equiniti Group plc 2020 | Confidential.
Activist Campaigns Globally in 2019 Full Year YoY # of targets 2014 2015 2016 2017 2018 2019 2018-19 Source: Activist Insight, Shareholder Activism, 2019 645 785 891 865 946 839 Global -11% Europe 89 127 163 160 162 135 -17% n/a 29 39 34 51 52 UK +2% 10 | Equiniti Group plc 2020 | Confidential.
The Activist Landscape – 2019 Highlights ▪ Global activism is still strong, although an 11% downturn from 2018-19 “After difficult activist fund returns in 2018, in 2019 activists shifted to less risky campaigns with a shorter timeframe: Scuttle/Sweeten campaigns (M&A) with limited downside…” ▪ The number of European campaigns fell 17% to its lowest level in four years in 2019: ▪ More focus on large markets of Germany, Switzerland & France (these are 65% of European campaigns) ▪ M&A breakup activism made up 21% of all public demands at European companies in 2019, a high ▪ UK campaigns stable at 52 and still the largest target market for activists in Europe ▪ A record 147 investors launched new campaigns in 2019, incl 43 “first timers” with no prior activism history Strategy: Activism in Europe shows a clear divergence in strategy of the activists depending on the size: ▪ Larger targets who are high performing are encouraged to accelerate existing plan ▪ Smaller companies with weaker performance where options to “fix” or redefine strategy are effective ▪ mid- cap “sweet spot” of a combination of the two approaches (71% of Q3 2019 campaigns, excl M&A) Source: Statistics from Activist Insight “Shareholder Activism in 2019” and quote from Lazard’s 2019 Review of Shareholder Ac tivism Link 11 | Equiniti Group plc 2020 | Confidential.
The Activist Landscape – Types of Activist Occasional Who are the activists? and 34% 8% ▪ Full time activist investors (58%) like Elliott Associates and Starboard institutions 18% ▪ Occasional activists (34%) – traditional active managers = 42% ▪ Institutions and Others (8%) 34% ▪ First Timers – 47 new Activist in 2019 40% Trends Other ▪ “2019 has witnessed a shift from a few, well -known activists, to a more diversified full time group of occasional agitators and institutional investors…” ▪ “Traditional institutions and occasional activists now account for almost half of all activism campaigns” Activists are attracted to the UK as: ▪ They like the market a lower valuations / weak £; Europe/UK new horizon for activism; easy market to enter and leave ▪ Corporate Governance assistance: annual election of directors; no poison pills; shareholder/stakeholder friendly jurisdictions; and increasing cultural acceptance 12 | Equiniti Group plc 2020 | Confidential. Source: Lazard, Review of Shareholder Activism, Q3 2019 “Diversity of Agitators in Europe”
The Activist Landscape – Types of Campaign Activist demand by type – In Europe ▪ ▪ 50% Board related, M&A share from 12% to 21% ▪ Activist targets by market cap – In Europe ▪ All sizes of companies targeted, by proportion small companies less targeted directly Source: Statistics from Activist Insight “Shareholder Activism in 2019” 13 | Equiniti Group plc 2020 | Confidential.
Campaign Types Large-scale shareholder activism sometimes seeks to oust entire boards, more commonly takes issue with specific areas: ▪ Board related (50%) Committee membership and director re-election ▪ Auditor issues ▪ Executive pay ▪ Concern over company strategic direction ▪ Equity issuance ▪ Share issuance proposals ▪ Employee board representation In many cases the campaign is resolved before moving towards a public contest The Activist is playing a more common role in M&A activity by pressuring to: ▪ Sell the Company (31%) - Agitate for sale of target or encourage industry consolidation ▪ Break-Up / Divestiture (31%) - Agitation for a divestiture of a non-core business line or company breakup ▪ Scuttle or Sweeten Existing Deals (38%) - Entry into a live M&A situation to improve deal terms or block an ill-perceived deal from proceeding 14 | Equiniti Group plc 2020 | Confidential.
Activist Campaign Research ▪ Activist shareholders will spend considerable time on research before activating a campaign ▪ Activists develop detailed attack strategies and vote projections – to determine the most ‘winnable’ resolutions to propose: ▪ Stake building ▪ Private engagement with management, private and threats of going public / legal actions ▪ Public campaign - letters, dedicated websites, social media & press, threats to propose resolutions ▪ Full campaign - calling a shareholder meeting, requisitioning resolutions, letters to shareholders ▪ Notionally ‘reasonable’ or ‘shareholder friendly resolutions will be proposed ▪ The Activist will analyse the Target shareholder base using public information (e.g. Bloomberg , ThomsonOne ) and by purchasing a Register Analysis from Argus Vickers ▪ May consider a s116 / s811 data request for more information when their proxy solicitation plans are ready to enact ▪ Activists may use retail forums (UKSA / ShareSoc) and monitor investor ‘chat’ forums In many cases the campaign is resolved before moving towards a public contest Activists will speak to: - Peers and other shareholders - Employees (current and former) and suppliers - Proxy Advisers and Proxy Solicitors - Lawyers and Corporate Financiers 15 | Equiniti Group plc 2020 | Confidential.
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