Hedge Fund Presses Bid to Oust LSE Chairman After Rolet Setback
(Bloomberg) -- Christopher Hohn, the activist investor who runs TCI Fund Management, has never liked taking no for an answer. This time is no different.
Thwarted in his effort to keep Xavier Rolet on as chief executive officer of London Stock Exchange Group Plc, he’s pushing ahead with a campaign to oust Chairman Donald Brydon, who plans to stay until 2019. Hohn is persisting even after Bank of England Governor Mark Carney voiced frustration with the management tussle at the 216-year-old stock market.
“As a shareholder in LSE, or indeed as part of its broader management team, you wouldn’t look at any of these continuing developments with any satisfaction,” said Paul Kinrade, a managing director at consulting firm Alvarez & Marsal. “The ongoing publicity and disruption is, at best, unhelpful.”
Hohn first captured the media spotlight leading a bruising shareholder revolt in 2005 that drove out the CEO and chairman of Deutsche Boerse AG. TCI, which owns more than 5 percent of the London exchange, on Thursday demanded a shareholder meeting to remove Brydon, 72. A day earlier, Rolet said he would step down immediately, spoiling Hohn’s campaign to extend his tenure until 2021.
The LSE will hold a meeting of shareholders on Dec. 19 to allow a vote on Brydon’s future, the company said in a circular released Thursday. It added that “aspects of Xavier Rolet’s operating style” were “important factors” that the board considered when setting out a succession plan, declining to provide further details.
Hohn is best known for activist bets, or buying stakes in companies and then pressuring management to make sometimes painful changes to boost the share price. His failure so far in this case shows the limitations of such aggressive campaigns, which often lead to pushback from European boards. It’s also possible that Hohn overestimated the support he would receive from other investors.
Near the start of his push to keep Rolet in early November, Hohn wrote to Brydon that it was TCI’s “firm belief that the majority of shareholders support the CEO staying long term and cannot understand your reasons for seeking his removal.” Just one -- Egerton Capital -- came forward publicly to back his effort, and the share price was largely unmoved by the vocal four-week campaign. It declined 0.7 percent on Thursday to 3,779 pence ($51.11).
It’s no mystery why Hohn wanted to keep the 58-year-old Rolet as CEO. In his eight-year tenure, the Frenchman led a series of successful deals that gave LSE control of the world’s largest clearinghouse and arguably the biggest compiler of financial indexes. The stock surged five-fold under his watch.
But it was a failed deal that ultimately led to Rolet’s departure. In March, the European Commission blocked the $14 billion sale of the LSE to Deutsche Boerse. Rolet, who had agreed to retire on completion of the deal, unexpectedly found himself in charge of LSE for the foreseeable future. That was the beginning of the split between Rolet and Brydon.
The LSE chairman had a back-up plan in case the deal with Deutsche Boerse collapsed, according to a person familiar with Brydon’s thinking. Rather than retain Rolet, who had been planning his retirement for 12 months, Brydon wanted to bring in someone new, the person said, asking not to be identified discussing private matters.
Few investors were surprised when the LSE announced on Oct. 19 that Rolet would stand down after a lengthy handover period. After all, if Deutsche Boerse had succeeded in buying LSE, he would already have been free to tend the harvest at his wife’s vineyard in Provence. But on Nov. 3, Hohn launched his campaign to extend Rolet’s contract and show Brydon the door.
TCI assumed that Rolet tacitly agreed with the firm’s demand for his extension, according to a person with knowledge of the matter. Rolet had changed his mind and wanted to stay on, a different person familiar with the matter said.
Over the next few weeks, the tussle escalated as Hohn demanded a shareholder vote. The LSE said on Nov. 10 that it would honor the hedge fund’s request by publishing a circular setting a date for a meeting. But there was a twist in store. A person with knowledge of the LSE board’s preparations said that the document would set out how Rolet had become increasingly difficult to work with. Some of the board members viewed the CEO’s management style as “imperious,” adding that he no longer tolerated dissent, according to the person. An LSE spokesman declined to immediately comment on the matter.
The equation changed again on Tuesday, when Carney noted Rolet’s contribution to the LSE but added that “everything comes to an end,” remarks viewed by some observers as a signal for the CEO to leave. And Rolet, who had been silent since TCI started its campaign, was categorical in announcing his departure on Wednesday morning: “I will not be returning to the office of CEO or director under any circumstances."
Under the plan announced Wednesday, Rolet will be replaced by Chief Financial Officer David Warren on an interim basis, and Brydon will exit in 2019. The company also asked TCI to take back its demand for an extraordinary general meeting, which Hohn declined to do.
“There is no change to our position” on Brydon, TCI said in an statement on Thursday. The vote later this month will determine whether Brydon or someone else gets to help choose the LSE’s next CEO.
©2017 Bloomberg L.P.