State of the Market – European Review Q1 2023
Activism and Shareholder Engagement
#5
Campaigns 2023
The most targeted sectors have been Consumers and Industrials
19%
15%
12%
8%
Consumer Discretionary
Industrials
Materials
Financials
Health Care
Communications
Others
... while Germany saw record start of the year in activism campaigns:
50%
United Kingdom
23%
Germany
4%
France
Norway
Belgium
Netherlands
As of March 2023, the number of New Activism Campaigns in Europe is #26 ytd
Summary
2023 started with a sharp increase in number of activism campaigns driven by break-up requests.
Germany saw record start of the year with #6 new campaigns as low valuations coupled with country-specifics are attracting activist investors.
New actors are entering the activism arena and acting in concert pushing for different changes particularly in large-companies as they see them as "defensive" play in this volatile environment – experts call this trend "wolfpack" attack.
Number of campaigns soars in the first quarter of 2023, as activists set for a new wave of attacks on companies
Q3
Q4
Q2
Q1
24
43
74
82
101
98
110
87
2015
2016
2017
2018
2019
2020
2021
2022
2023
26
6
11
20
13
25
29
32
22
+18%
Learn more
2023 started with large companies being the target of activism because they are viewed as a "defensive" play to put money in a volatile economic environment.
What are activists asking in 2023?
Break-up and board representation are the most popular requests – activists see break-up as the quickest way to unlock value and they want to be the ones to lead this change!
Board Representation
Buyback
Oppose Acquisition
Cost Cutting
Break Up
31%
21%
10%
7%
2023 ACTIVISTS REQUESTS BREAKDOWN (%)
Blocking a deal slate, that soared in 2022, continued both globally and in Europe in the first quarter of 2023.
Case Study
Wolfpack Strategy
More and more actors are entering in the activism arena: Large companies are particularly vulnerable to these packs of agitators that may not even have the same agenda but they act in coordination to make their prey weaker and weaker.
< USD 500 m
27%
USD 500 m – USD 1 bn
USD 1 bn – USD 5 bn
USD 5 bn – USD 10 bn
> USD 10 bn
38%
% 2023 EU Campaigns by Market Cap
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2023 Q1 Update
CASE Study
A&SE Services
Legal Framework Episode #1
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General Company Info
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Case Study Bayer
ESG and Shareholder Base
Business Operation
Return and Valuation
Vulnerability Index is 58.8 – very high compared with industry and German average, meaning the Company is under activists screening; Total Shareholder Return should be monitored as a deterioration could increase dissatisfaction among shareholders; Valuations are very low and FCF evolution is under scrutiny. The board tenure is too high with a member sitting there for more than 20 years.
Our Vulnerability Index fully intercepted Bayer Case
The Result
The Activists
The Request
The Case
In 2018 Bayer finalised the acquisition of the agribusiness giant Monsanto for USD 63 bio, widely regarded as one of the most damaging acquisitions in recent times as Bayer’s stock was down almost 50% a year after the deal completion, never recovered from there.
The Catalyst
Timing is important. Activists wait for the right catalyst to attack; in the Bayer Case the catalyst was the upcoming end of the employment contract for its chief executive – Werner Baumann – heavily criticized by shareholders since he engineered the Monsanto deal.
Elliott Investment – 2019, >2% stake Bluebell – 2022, stake not disclosed Inclusive Partners – 2023, 0.8% stake
The Activist
In February 2023 Bayer has appointed Roche’s former head of pharmaceuticals Bill Anderson as new CEO. Werner Baumann will leave by the end of May, almost a year before his contract expires. Shares rose 6% after the announcement. The new CEO states that his ambition is to "accelerate innovation, increase performance, advance sustainability and unleash the full potential of the company”.
Results as of today
Replacement of CEO Refreshment of the Board Break Up
58.8
Vulnerability Index
The full range of our offer
More than 30 activities provided by UniCredit Team to secure and protect the Company from activist potential attacks and proactively engage with shareholders ...
Vulnerability Assessment
Shareholder Support Analysis
Stakeholder Engagement
Explore Penetration Angles
Activists Monitoring & Watch List
ESG Attack Points Analysis
Shareholder Structure Analysis
Shifts in Ownership
Vote Projections
Communication Strategy
“Ready” Team & Response Protocol
Proactive Engagement
Defense Playbook
Centralised Monitor Platform
Campaign Management / Coordination
Shareholder Info Collection
Market Sentiment Dashboard
Shareholder Base Intelligence
Independent Review
Ready Team
Strategic White Paper
Statement of Defense
Campaign Maneuvers
Activists Matrix
For Investor Relations
For Management and Board
By failing to prepare, you are preparing to fail
Michele Troiani
Managing Director Head of Activism & Shareholder Engagement Advisory & Capital Markets
Michele.Troiani@unicredit.eu
Luca Azzara
Associate Director, CFA Activism & Shareholder Engagement Advisory & Capital Markets
Luca.Azzara@unicredit.eu
Contacts
German Domination Agreement
Domination Agreement
Activists, with Elliott being the pioneer of this approach, have frequently muscled in on such situations accumulating shares to prevent the acquirer’s ability to conclude the domination agreement after the takeover, or – failing this – challenging the compensation and pay-out terms offered in the agreement.
The agreement is usually forever, but renegotiable after 5 years.
a. The domination agreement must include an offer to acquire the shares of the target company b. The dominating shareholder must pay a guaranteed dividend to the remaining minority shareholders c. The dominating shareholder must compensate the target company for any annual loss it suffers
In an M&A deal, the bidder needs 50% of a company’s shares to force changes to its supervisory board and influence strategy but to control the target’s cash flows, he must secure 75% of votes in the shareholder meeting in support of the so-called “domination agreement”. The remaining minority shareholders then surrender their voting rights to give the acquirer outright control. In return, the newly gagged minorities get the option to sell their shares for a “fair” amount to be determined by independent assessors and the courts. Until that day comes, they collect an annual payment that is supposed to replace the dividends they aren’t getting in the meantime.
The domination agreement is a unique procedure under the German Law that makes completing a deal tougher, as it is a necessary condition for an acquirer to avail itself of the target’s assets to pay for the acquisition price.
Why do activists love it?
How long does it last?
What should be included?
How does it work?
What is it?
