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Activist investing - is your board ready?

The threat of an activist campaign has now become an everyday hazard for listed companies across the world. Yet well-prepared boards can defend against this highly disruptive event and even use it to strengthen their strategic purpose.

Once mostly a feature of U.S. corporate life, activism has now spread to many markets in Europe and Asia and is a threat that shows no sign of abating.

The statistics show that campaigns reached a new high in 2018 and with far greater global reach than ever before. More importantly an increasing number of attacks were focused on transactions, with one study suggesting a third of campaigns were M&A related.

Different dynamics apply in different jurisdictions and, in planning a defence, it is important for boards to understand trends both within their own sectors and in other markets. For instance the UK, now probably the second most popular target for activists, tends to be less litigious than the U.S., with battles fought out through PR or proxy battles rather than in the courts.

Activists are increasingly targeting Japanese companies – often cash-rich and with plenty of non-core businesses that can be sold off. Some continental European jurisdictions offer boards greater protections, not least the Netherlands, but even France has seen an upsurge in activity in important companies such as Pernod Ricard and Lagardère.

With limited regulatory or government intervention, apart from in clear national interest cases, the onus is on boards to prepare their own robust defence, much as they would for a hostile bid. That means keeping strategy under constant review, having board members with an appropriate array of expertise, and maintaining regular contact with current shareholders whose support will be vital.

Most importantly boards should engage with activists, who often have well-articulated cases, presenting clear arguments in support of the current strategy. Stonewalling is not an option; neither is attacking the activists in the media, without a very carefully built plan.

A declining M&A market could expose even more corporate strategic vulnerabilities for activists to exploit. So this is a trend that will only continue to grow, even at an economically uncertain time. Boards need to be ready.

The threat of an activist campaign has now become an everyday hazard for listed companies across the world. Yet well-prepared boards can defend against this highly disruptive event and even use it to strengthen their strategic purpose.

Once mostly a feature of U.S. corporate life, activism has now spread to many markets in Europe and Asia and is a threat that shows no sign of abating.

The statistics show that campaigns reached a new high in 2018 and with far greater global reach than ever before. More importantly an increasing number of attacks were focused on transactions, with one study suggesting a third of campaigns were M&A related.

Different dynamics apply in different jurisdictions and, in planning a defence, it is important for boards to understand trends both within their own sectors and in other markets. For instance the UK, now probably the second most popular target for activists, tends to be less litigious than the U.S., with battles fought out through PR or proxy battles rather than in the courts.

Activists are increasingly targeting Japanese companies – often cash-rich and with plenty of non-core businesses that can be sold off. Some continental European jurisdictions offer boards greater protections, not least the Netherlands, but even France has seen an upsurge in activity in important companies such as Pernod Ricard and Lagardère.

With limited regulatory or government intervention, apart from in clear national interest cases, the onus is on boards to prepare their own robust defence, much as they would for a hostile bid. That means keeping strategy under constant review, having board members with an appropriate array of expertise, and maintaining regular contact with current shareholders whose support will be vital.

Most importantly boards should engage with activists, who often have well-articulated cases, presenting clear arguments in support of the current strategy. Stonewalling is not an option; neither is attacking the activists in the media, without a very carefully built plan.

A declining M&A market could expose even more corporate strategic vulnerabilities for activists to exploit. So this is a trend that will only continue to grow, even at an economically uncertain time. Boards need to be ready.