Until recently, shareholder activism was largely considered to be confined to the U.S. market.

Not anymore. In the last few years, the number of investors buying a minority stake in companies to actively push for governance change, promote their own strategy or influence M&A activity, has increased significantly across the world and particularly in the UK, France and Japan.

London Partner Patrick Sarch explains: “While shareholders naturally have an influence in the companies they invest in, activism differs because the activists make their investments with a premeditated plan to encourage or force through significant change.

“They’ll typically identify a company that’s clearly underperforming or whose assets are worth more than its market value and devise a strategy to transform that business’s performance or otherwise increase returns for shareholders.

“Rather than achieving that goal by taking over a company, an activist typically builds a big enough position to be able to influence discussions and bring active change, be it by campaigning to change a company’s board or structure, or buying and selling assets.

“An activist is essentially a disruptor, but their ultimate aim is to realize and release value for the benefit of shareholders, regardless of whether their strategy ruffles the feathers of management or majority shareholders.”

The Firm has been working on shareholder activist situations in the United States for many years, advising companies on their response to activists.

However, outside of the United States, we are working for both corporate clients and the activists themselves.

Patrick says: “We’re the only leading global law firm that is working with the major activist investors, giving us a unique selling point in the market.

“Working with activists has traditionally been frowned upon by companies in some markets who view it as ‘working with the enemy’, but the truth is that activists are, in many ways, little different to any other vocal investors seeking value.

“In fact, activist influence on M&A deals is now the norm, and we only see that increasing.”

A broad portfolio

Our services to activists include helping them understand the risks and legal implications of upping their interest in a company above certain thresholds, M&A and antitrust advice, and advising them on the tactics and parameters of public campaigns.

From a corporate perspective, we advise clients on how to defend themselves against activists, and their legal position when fighting activist activities.

London Partner Tom Matthews says: “It may seem odd working for both sides, but in truth it would be odd if we weren’t. We are much more effective advising corporate clients on how to defend against activists, because we have the best insight on activists’ strategies and motives.

“We’re also finding that our corporate clients view us as unique in that respect. They understand that they need to prepare for activism and that, if a situation arises, they need expert legal advice on how to deal with it.”

In fact, the Firm has held several events where we have arranged for our corporate clients to meet with activist investors.

“When we introduced our C-Suite clients to one of the world’s most prolific activist portfolio managers at a recent event, the atmosphere was frosty at first,” says Patrick, “but our corporate clients found the evening extremely informative, and they valued the chance to understand where activists are coming from, their motivations, the high degree of sophistication in their analysis, and to see things from their perspective.

“That’s the type of opportunity they can’t get from any other major law firm, because we’re the only global firm that knows the activists well.”

Global approach

These meetings have also presented opportunities for London-based activists to meet experts such as competing activists, the Committee on Foreign Investment in the United States (CFIUS) and litigation partners.

Recently, Partner Nels Hansen of our Tokyo office gave them an insight into the Japanese market, which has itself experienced a surge in activism.

Nels, Jun Usami, Shino Asayama and other team members in Tokyo have been at the forefront of the growth story in Japan, advising both investors and targeted companies.

Nels explains: “Traditionally, a lot of Japanese banks, insurance companies and other friendly companies have held stakes in big Japanese companies, making activism a challenge.

“However, as the percentage of institutional and foreign shareholdings have increased and Japan’s government has asked institutional holders to support improved governance and engagement, the atmosphere has changed and activists are no longer universally perceived as negative.”

These factors have created opportunities for certain funds and for management to use the changed environment to justify difficult, but important corporate decisions.

Nels says: “Japanese institutional shareholders are now more receptive to reasonable requests for support through shareholder activist proposals and, in turn, Japanese management are more open to meetings with, and concessions to, shareholder activists.”

One recent matter the Tokyo office advised on was ValueAct’s $600 million investment in Japanese blue-chip company Olympus.

Olympus subsequently announced it had invited a ValueAct representative to join its board, along with two foreign directors, representing the first time that a Nikkei index member had invited a foreign hedge fund representative to join its board of directors.

Nels says: “The Olympus investment is widely viewed as an example of the positive impact shareholder activism can have.

“Being involved in this transaction has helped cement our team’s position as the go-to law firm for activism in Japan, attracting Japanese companies to seek our counsel along with those on the activist side.”

Building relationships

Another growth market for activism is France where Partner Diane Lamarche and her team are active for both activist and corporate clients.

Diane explains: “Many French-listed companies have a very fragmented shareholder base with good valuation, making the French market attractive for activists.”

Indeed, several major French companies were targeted in 2019, including Pernod Ricard, Suez and Lagardère, triggering enhanced public attention on this new phenomenon.

“I’ve been working on activist-related matters for around 12 years, building up a close relationship with UK-based Amber Capital and U.S.-based activist Elliott, who are very active in France,” says Diane.

“Among other projects, our work with Amber Capital includes advising them on their ongoing campaign to cause a change in governance and strategy within Lagardère (they recently requested to replace the entire supervisory board of the company).

“We have also advised Elliott on several matters, including in the judicial proceedings that followed their 2015 investment in Norbert Dentressangle, where they blocked the squeeze-out contemplated by XPO Logistics.”

On the corporate side, clients include Explosifs et Produits Chimiques, which we assist in the judicial proceedings brought by Allan Green’s fund, Candel & Partners.

Diane says: “France is a very fertile market and being able to advise both activists and issuers is a major asset for the Firm.”

Collaboration is key

Our focus on winning shareholder activism matters has been driven by a strategic cross-network approach, with offices regularly sharing insights and supporting one another.

While our work in the United States focuses on the corporate side, our teams around the world, and particularly in Japan, London, France, Poland, Germany and Australia, are looking to increase ties with activists and corporations.

We’re also promoting our services to activists based in the United States, with offices elsewhere in the world available to advise them on their investments overseas.

Patrick says: “Activism is continuing to grow and, as it does, the size of the investments and complexity of the advice required is increasing.

“While the market in the United States is mature and near saturation, the number of activists looking abroad for their investments is increasing.

“The average size of investment for major activist funds can be around $500 million and bigger investments call for more sophisticated advice, which is where we’re well placed to help, particularly as we’re the only major international firm currently working with activists.

“It’s rare to have that kind of differentiation in the market and it gives us an important first-mover advantage, as the market grows and spreads.”