A corporate culture that has long favored quiet chats over splashy headlines is being shaken up as activist funds are targeting other Australian firms and as BHP Billiton fends off the attention of Elliott Management.
In an effort to improve returns, and in order to pressure corporate boards criticized as clubby and conservative, activist investors are using Australia’s shareholder-friendly laws who are seeking new, less crowded markets.
“Whereas before it was quite normal for companies to address any potential shareholder activism in Australia behind closed doors, only now is there a real appetite to go public and to take the message direct to shareholders,” said Michael Chandler, governance director at shareholder engagement firm Global Proxy Solicitation.
According to data from research firm Activist Insight, a quarter more than same period five years ago, activists publicly targeted 26 Australia-listed companies in the first five months of 2017.
The size of targets has jumped while the number of targets is similar to last year. The idea that no company is immune has been cemented by Elliott’s three month campaign targeting BHP, known as “The Big Australian”.
And with activist shareholders winning board-level resignations or strategy changes, the strategy appears to be bearing some fruit.
While Wilson Asset Management forced the exit of Hunter Hall Global Value Ltd’s chairman in April building firm Brickworks Ltd is in court to defend its corporate structure from attack by Perpetual Ltd, and are among the more recent campaigns.
And with a change for a country where activist investors have largely been homegrown, more attacks are also coming from overseas.
According to Activist Insight data, compared with 59 percent in Canada and 39 percent in Japan, 86 percent of Australian campaigns came from domestic investors, between 2013 and 2016.
“The U.S. markets are a bit saturated, so (activist investors) look at the markets that don’t have as much activist focus at the moment and that are most similar to the U.S.,” said David Hunker, head of shareholder activism defense at J.P. Morgan.
Building an initial 10 percent stake in medical device developer GI Dynamics Inc. last year, Britain’s Crystal Amber Fund Ltd has moved aggressively into the market, apart from New York-based Elliott’s push into Australia.
Crystal Amber is pushing for an AIM listing in Britain and has grown its stake to more than 40 percent and backed a new management team’s plan to commercialize the company’s obesity and diabetes treatment.
Australian corporate rules help activist investors, unlike some other Asian markets.
In order to insulate themselves from a change of control, boards are barred from putting in place U.S.-style “poison pills” and a meeting to remove directors with only a 5 percent stake can be called by shareholders.
Shareholder activism is still niche in Australia compared with the United States, where Elliott last month raised more than $5 billion in 24 hours for a new fund.
“None of the big name marquee activists have really made an attack down here publicly until Elliott,” said Gabriel Radzyminski, managing director of Sandon Capital, one of the few dedicated activist funds in Australia.
“You’ve got to have an appreciation for local mores and customs. It doesn’t mean foreigners can’t do it, but you have just got to be conscious.”
They can achieve their aims without confrontational, public spats and Australian boards do respond to feedback from major investors, some investors and directors say.
For example, after fund managers privately baulked at the risks, plans to establish a general insurance business in China were killed by Insurance Australia Group in 2015. Another example is halting a pricey expansion plan in 2012 ay BHP and change its dividend policy last year was possible by private persuasion by shareholders in BHP.
He couldn’t recall any case in which he backed an activist’s public push for change, said Aberdeen Asset Management portfolio manager Mark Daniels, whose firm owns BHP shares.
“We wouldn’t be invested in the company if we didn’t like it in the first place,” he said.
(Adapted from Reuters)