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The Rise of 'Activist Investors' - How Should the Company Prepare?

18 May 2023

The Rise of 'Activist Investors' - How Should the Company Prepare?

(Read the Japanese version below)

On 18th April in Tokyo Dominic Henderson, Managing Director and head of Morrow Sodali in Japan participated on a panel to discuss the rise of activism in Japan and how issuers should prepare and respond. The panel consisted of a typical activist defence team: Financial Advisor, Legal Advisor, Proxy Solicitation Advisor and Public Relations Advisor. The other panelists were Yasuhiro Kikuchi of financial advisor Mizuho Securities, Mitsuhiro Kamiya, Ken King and Scott Hopkins of legal advisor Skadden Arps, and Minako Otani of PR advisor Kekst CNC . 

The panel discussion focused on Preparation, Response & Messaging, and the Importance of Other Shareholders, not just the Activist.

This article is a summary of the panel discussion.

Yasuhiro Kikuchi of Mizuho Securities explained that many issuers understand the need for preparation, but very often have not enacted a plan. Being proactive saves time, whereas being reactive to an activist’s actions takes up a lot of the CEO and senior management’s time. As Scott Hopkins of Skadden Arps said, “an ounce of preparation is worth a pound of cure”. Scott suggested the need to analyse who is attending an issuer’s earnings calls is a good starting point. Could they be activists or friends of activists? What is happening to the shareholder register? Are there any significant changes? Are unusual trading patterns in the stock sending a signal? 

Ongoing communication with shareholders is important. If an issuer only decides to engage with shareholders once an activist has appeared, it is not ideal as the shareholders know that the issuer is engaging only because it needs to. 

Dominic Henderson of Morrow Sodali encouraged senior management teams to be objective and to look closely at their companies and understand how investors, including activist investors, may look at these companies. This is good corporate governance. Identify and address any issues immediately. It is important to engage with all investors, not just domestic institutions. Nowadays, foreign investors have a large share of the Japanese market and can be vocal. Make sure investors understand the medium and long-term plans of the company. The better informed they are, the more likely they are to be supportive. Understand which Proxy Advisors and ESG Ratings Agencies influence the investors.

As part of the preparation process, Minako Otani of Kekst CNC listed three key steps. 
  1. An issuer needs to look at itself through the lens of an activist and understand its own weaknesses and vulnerabilities.
  2. Strengthen the IR and PR capabilities. Refining and delivering key messages is an ongoing process. Be prepared for various scenarios and be ready for Q&A.
  3. Try to build good relations with both domestic and international media. If an issuer has good relations with the media, which in turn understands the issuer’s strategy, then the media is less likely to write just about the activist situation. Some of the most influential foreign media include the FT’s Lex column, the WSJ’s Heard on the Street and the Bloomberg Opinion column.
In the event of an activist situation, the panel advised that the activist must be treated with respect and ideas must be listened to. Ken King of Skadden Arps warned that issuers must know what other investors think and that the issuer must not make the mistake of engaging only with the activist. Ultimately, these situations are about all the other investors and not just the activist. Activists only win if a significant number of other investors agree with them. Activists can be very effective in identifying key issues that are important to other shareholders and use these as leverage (e.g. ESG ). In addition, Ken pointed out the need to be mindful that engagement with an activist is not typically covered by an NDA and so an activist can use any communication, such as an email or a statement, in a public attack.

Very often an activist has conducted deep research into the targeted issuer, and this is why the activist should not be dismissed, but rather engaged. Senior executives at an issuer have the advantage of being insiders and thus having a deep knowledge of the business and its customers. They should have a strong grasp of an issuers strategy but should also ask if this strategy is being adequately disclosed. 

To illustrate the importance of engaging with an activist, the example of Nelson Peltz’s Trian Fund Management’s campaign against PepsiCo in 2013-2016 was cited. Trian conducted deep research, engaged with many of the top 100 investors in PepsiCo and delivered its detailed findings to the board. PepsiCo’s CEO at the time, Indra Nooyi, did not back down from her belief that its large size was a strength, but did address operational issues that increased productivity, reduced overhead and boosted the company’s advertising spending. When the campaign was over, in an interview Ms. Nooyi explained that while the campaign was very tough, in the end PepsiCo ended up getting very high quality and challenging management consulting for no fee! However, it should be noted a substantial amount of management time was consumed.

In his introduction to the panel discussion, moderator Dr. Jochen Legewie of Kekst CNC set the scene by highlighting the growth in the number of activist campaigns in Japan. These are campaigns being done by both domestic and foreign activists. At the end of the panel discussion Dominic Henderson explained that one should expect the number of campaigns to increase, especially in light of the Tokyo Stock Exchange’s (TSE) request that issuers which have been trading below book value for a significant period of time should formulate and disclose a plan to close this valuation gap. Whereas the TSE does not have any power to enforce this, one should consider the situation in which an investor submits a shareholder proposal to an issuer to disclose a plan to narrow the valuation gap. In this case, the voting position of any signatory to the Stewardship Code will be publicly disclosed and it would be embarrassing for an investor who voted against the proposal to justify its reasons.

「アクティビスト投資家」の台頭 企業はどう備えるべきか?

418日、モロー・ソダリのマネージング・ディレクタで在日代表を務めるドミニク・ヘンダーソンが東京で行われたパネルディスカッションに参加し、日本におけるアクティビズムの台頭と企業の準備・対応策について議論しました。パネルには典型的なアクティビスト対応チームを構成するファイナンシャル・アドバイザー、法律アドバイザー、委任状勧誘アドバイザー、PRアドバイザーが参加しました。他のパネリストは、フィナンシャル・アドバイザーであるみずほ証券の菊池安弘氏、法律アドバイザーであるスキャデンの神谷光弘氏、ケントン・キング氏、スコット・ホプキンス氏、PRアドバイザーである Kekst CNCの大谷みな子氏です。






準備の一環として、Kekst CNCの大谷みな子氏は3つの重要なステップを挙げています。
  1. 企業はアクティビストのレンズを通して自らを見つめ、自らの弱点や脆弱性を理解する必要があります。
  2. IRPRの機能を強化してください。キー・メッセージを洗練させ、伝えることは継続的な取り組みと理解してください。様々なシナリオを想定し、Q&Aに備えて下さい。
  3. 国内外メディアとの良好な関係の構築に努めてください。企業がメディアと良好な関係を築き、そのメディアが企業の戦略をよく理解していれば、メディアがアクティビストの状況だけを記事にする可能性は低くなります。最も影響力のある海外メディアには、FTLexコラム、WSJHeard on the StreetBloombergOpinionコラムなどがあります。




パネルディスカッションにあたり、モデレーターを務めるKekst CNCのヨッヒェン・レゲウィ博士は日本におけるアクティビスト・キャンペーンの増加について紹介しました。キャンペーンは国内外のアクティビストにより行われています。パネルディスカッションの最後に、ドミニク・ヘンダーソン氏は特に東京証券取引所(TSE)が相当期間簿価を下回って取引されている企業に対して、この評価ギャップを埋めるための計画を策定し開示するよう要請したことを受けて、キャンペーンが増加すると予想すべきだと指摘しました。東証にはこれを強制する力はありませんが、投資家が株主提案として評価ギャップの縮小に向けた計画を開示するよう企業に求める可能性もあります。この場合、スチュワードシップ・コードに署名している投資家の議決権行使結果は公開されるため、反対票を投じた投資家はその行動を正当化することに苦労するでしょう。

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