European Shareholders

Last Among Equals

Shareholders are rightly fed up with being treated as last among equals.
At Closing, April 25th
75.50 EUR
At Closing, April 25th
107.88 USD

Sometimes, shareholders just can’t help themselves.

Faced with a stingy takeover offer, they say the target’s board should cave in and talk to the bidder without delay. Unilever NV and Akzo Nobel NV are the latest examples of the phenomenon.

It’s a counterproductive tactic -- but companies can't ignore the reasons why some shareholders do it.

Mind The Gap

Unilever shares had started to trail their peers before Kraft Heinz pounced

Source: Bloomberg

According to a survey published by analysts at Bernstein this week, 53 percent of Unilever shareholders thought the ice-cream maker should have entered talks with Kraft Heinz Co. after the U.S. group made a takeover proposal with a measly 18 percent premium.

A sample of one broker’s clients is unlikely to represent Unilever’s register accurately. But it is still a striking result.

Last week, a fund manager at Henderson Global Investors called on Akzo to engage with PPG Industries Inc. after the Dutch chemicals giant snubbed its approach, which included a 31 percent premium. Shareholder Southeastern Concentrated Value added to the pressure on Akzo by declaring that a combination with PPG had strategic logic.

Paint Job

PPG's pitch for Akzo Nobel looks cheap on a enterprise value/forward Ebitda basis

Source: Bloomberg, Sherwin-Williams presentation

But Unilever and Akzo were right not to engage.

It’s clear both companies can lift their share prices to the levels offered by their putative bidders by taking action on their own. Unilever has promised a strategic review, and its stock is already there. Akzo, now in the process of breaking itself up, is on the way.

Surely, the argument goes, the companies would be able to tease out a higher price from their suitors by entering talks? This reasoning is flawed. The minute a target engages, it is effectively admitting defeat. And if it lets the bidder look at its books, negotiating leverage is all but gone. Result: shareholders are short-changed. To wring out the best price from a bidder, playing hard to get is usually the best tactic.

Shareholders aren't stupid and know this. So the boards of Unilever and Akzo should ask themselves why some investors are nevertheless advocating a course of action which could undermine their ability to extract the best possible price for the businesses.

The answer is that many investors are fed up and feel their interests are being neglected by the boards of European companies. When it comes to weighing the interests of shareholders, employees, customers and society, many investors feel they are a long way from being treated as “among equals” in any sense.

Persistent poor capital allocation and weak controls over bloated costs have left them feeling ignored. What’s more, there is skepticism towards Dutch companies especially: many have poison pill defenses which could be used by managers intent on staying independent at all costs.

Small wonder, then, that when a bid emerges for a company whose stock has under-performed or trades at a steep discount to its peers, shareholders scream for management to accept it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Chris Hughes in London at

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    Edward Evans at

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