A trader speaks on a phone as the DAX Index curve is displayed beyond inside the Frankfurt Stock Exchange, operated by Deutsche Boerse AG, in Frankfurt, Germany.(Photographer: Alex Kraus/Bloomberg)

Activist Investors Raise Sights in Europe With U.K. Prime Target

(Bloomberg) -- Activist investors are targeting bigger companies in Europe with those in the U.K. most at risk of intervention and more shareholders teaming up to force change, according to Alvarez & Marsal Inc.

The average market capitalization of a predicted target company has risen to $17.6 billion from $16.5 billion in a September report, the restructuring consultant said after analyzing 1,715 firms. The 6.7 percent increase compares with a gain of just 1.3 percent for the U.K. FTSE All Share Index over the same period, A&M said.

The report’s findings will serve as a reminder to boardrooms of the growing threat of activism, particularly in the U.K., home to more than a third of the companies at risk this year or next, according to A&M. Brexit uncertainties have proved no deterrent to activist-backed campaigns such as Melrose Industries Plc’s hostile takeover of GKN Plc, the report’s authors say.

“One phenomenon that we are seeing is ‘wolf packs’ of like-minded investors, who are pooling their strength to force a debate with management,” said Malcolm McKenzie, a managing director at A&M in London. “It is becoming clear that they are forming more easily and more quickly, and increasingly they are setting their sights on larger companies.”

Consumer, industrial and information technology companies are more likely to be targets for activism, while energy firms have become less attractive due to the recovery in oil prices, according to the consultancy.

Billionaire Paul Singer’s Elliott Management Corp. in April disclosed a stake in Whitbread Plc, which has been under pressure for years to consider splitting its Costa Coffee shops from its Premier Inn hotels. Less than two weeks after Elliott’s stake disclosure, Whitbread said it would spin off Costa within 24 months. Scott Ferguson’s Sachem Head had disclosed a stake in the U.K. company in December.

“A board that sees the warning signs should act pre-emptively to avoid the considerable financial, reputational and disruptive risks that can accompany a public activist campaign,” said A&M’s McKenzie, who was speaking generally. “In this heightened environment, it is crucial for boards to move decisively to ensure meaningful change is delivered before the ‘wolf pack’ closes in.”

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