Coffee, Property and Telcos: Elliott's European Bets in Focus

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(Bloomberg) -- It’s going to be a busy week for billionaire Paul Singer’s Elliott Management Corp. as the spotlight turns on three of the activist hedge fund’s European investments.

Hammerson Plc, in which Elliott disclosed a stake on Friday, holds its annual general meeting on Tuesday, as does Telecom Italia SpA. Whitbread Plc is due to report results on Wednesday. For Elliott, the events provide an opportunity to monitor the progress of key holdings in a region where U.S. hedge funds have been becoming increasingly active. U.S.-based activists have made seven public demands against companies listed in Europe so far this year, according to data compiled by Activist Insight. Elliott declined to comment.

“There’s plenty of headroom for the U.S.-based activist heavyweights to play around in Europe right now,” said Ameet Patel, an analyst at Northern Trust Capital Markets. “The region is a lot less saturated with activists than the U.S. and given where U.S. equity valuations are, combined with the perception that the era of cheap debt may be coming to an end, it makes sense for activist investors such as Elliott to explore far and wide.”

Here’s a round-up of what to watch for from some of Elliott’s main European investments in coming weeks and months:

Hammerson (AGM April 24)

Shares in Hammerson Plc rose 4 percent on Friday after Elliott disclosed a stake in the U.K. real-estate company, which last week dropped a bid for Intu Properties Plc. Elliott increased its position in Hammerson to 1.73 percent, according to a filing on Monday. The company’s chairman, CEO and CFO should all probably resign, Jefferies analyst Mike Prew said in a note on Monday, adding that the AGM as well as Elliott appearing on the shareholder register may be “a chance to upgrade the board.”

A Hammerson spokeswoman declined to comment.

Telecom Italia (AGM April 24)

Shares in Telecom Italia have risen 19 percent since Bloomberg reported on March 5 that Elliott was building a stake, which the hedge fund later confirmed.

Elliott has criticized controlling-owner Vivendi SA’s stewardship of Telecom Italia and is seeking to replace directors tied to the main holder. A showdown between Elliott and Vivendi over the board makeup has been pushed back to May 4 after an Italian court ruling on Monday blocked the hedge fund from proposing a plan to oust six Vivendi-backed directors at Tuesday’s annual general meeting.

Vivendi’s soured relationship with the Italian government could work in Elliott’s favor, with the country’s state lender having this month acquired a 4.3 percent stake in the carrier. Elliott has “a good chance to oust Vivendi sooner or later, since Vivendi is facing opposition from many parties,” said Raymond James analyst Stephane Beyazian. The move is made riskier by French carrier Iliad SA’s impending entry into the country’s phone market, which means the hedge fund may be “overlooking a renewed price war in Italy” and its impact on the company’s earnings, he said.

A representative for Telecom Italia declined to comment.

Whitbread (FY Results April 25)

Shares in Whitbread Plc have gained 7.6 percent since Elliott said on April 14 it owns an economic interest of more than 6 percent of the company.

Whitbread has been under pressure for years to consider splitting its Costa Coffee shops from its Premier Inn hotels and Elliott has presented management with a plan for a demerger, according to a person familiar with the matter. CEO Alison Brittain isn’t “philosophically opposed” to spinning off Costa, the Sunday Times reported.

A representative for Whitbread declined to comment.

“Management has always said that it would ultimately be open to selling Costa, but felt that this would be a hostile market to sell it into,” said Bernstein analyst Richard Clarke. “If Elliott can identify a buyer willing to purchase it now for the required valuation, then it would not be inconsistent for management to sell it.” Clarke also noted the potential for Elliott to wait for like-for-like growth to turn around before forcing through the issue.

Micro Focus (Results July 11)

Shares in Micro Focus International Plc have advanced 12 percent since Bloomberg reported on April 12 that Elliott was said to have built a stake in the U.K. software company. The hedge fund said on Monday it has built a 5.1 percent position.

Elliott jumped on Micro Focus after a profit warning last month sent the shares into freefall. The fund is pushing for changes in a company that’s struggling to digest last year’s $8.8 billion purchase of HPE software assets, people familiar with the matter said. The company has received interest from several private equity suitors, according to a recent CNBC report. Micro Focus declined to comment.

“Micro Focus has suffered a loss of shareholder confidence” following March’s surprise departure of Chief Executive Officer Chris Hsu, said Northern Trust’s Patel. “That may provide the best window of opportunity for Elliott to enforce change.”

Smith & Nephew (2Q Results July 26)

Shares in Smith & Nephew Plc are up 2.2 percent since Bloomberg reported in October that Elliott had built a stake in the company. Neither Smith & Nephew nor Elliott has confirmed or denied the holding. A representative for Smith & Nephew declined to comment.

Smith & Nephew’s new CEO Namal Nawana joins on May 7 and his first public communication in the role will probably be at the 2Q results, according to Morgan Stanley analysts. Elliott has pushed the medical-device maker to boost its attractiveness by shedding assets, the Financial Times reported in October.

“Smith & Nephew is doing better in the businesses where they’re investing more money, but they’re losing market share or facing price pressures in areas such as hip implants and wound care, where they haven’t devoted as much attention to,” said Bloomberg Intelligence health-care analyst Jason McGorman. “I don’t think the new CEO appointment will change Elliott’s activist position until Smith & Nephew has a stronger strategic vision.”

BHP Billiton (FY results in August)

Shares in BHP Billiton Plc have climbed 17 percent since Elliott revealed a 4.1 percent stake in the London-listed shares on April 10, 2017 and said it’s seeking to improve capital returns.

Elliott has been campaigning publicly for more than a year for a range of changes at the company and in February called on it to conduct an independent study to review the potential benefits of a restructuring. BHP has previously said it doesn’t see any major benefit from Elliott’s proposal for an overhaul of its dual-listed structure.

Progress has been made on Elliott’s call to enhance returns, but not on its proposal for a unified BHP because “it remains the most heavily debated and complicated issue at hand,” said Bloomberg Intelligence analyst Andrew Cosgrove. The analyst sees an update on the situation by the time of BHP’s results in August, though a decision is unlikely given the sale process for the company’s U.S. petroleum assets is ongoing.

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