Europe to Attract U.S. Activism in Chemicals, Cevian SaysAndrew Noel
The shareholder activism that’s encouraging asset sales at DuPont Co. and Dow Chemical Co. in the U.S. has the potential to spread to Europe’s chemical industry, according to an executive at Cevian Capital AB.
“I expect a number of more aggressive U.S. investors to play a bigger role here,” said Harlan Zimmerman, a senior partner at the Swedish activist fund, which has about $15 billion in assets, including a stake in British electronic chemicals producer Alent Plc. “Some are screening European companies as well as American ones.”
DuPont Co. is under pressure from Nelson Peltz’s Trian Fund Management LP. Two months after the activist disclosed a stake, the Wilmington, Delaware-based company said it would spin off performance chemicals to boost investor returns. At Dow Chemical, the largest U.S. producer by sales, the addition of Daniel Loeb’s Third Point LLC as a shareholder has been accompanied by calls to spin off commodity-chemical assets.
Similar agitation may occur soon at European companies, though in gentler campaigns, according to James Knight and Heidi Vesterinen, analysts at Exane BNP Paribas. Cevian’s Zimmerman said that’s because of Europe’s tight governance rules and a different investor culture. As a result, his firm has a more conciliatory style.
“If you are a large shareholder, you’ll have a seat at the table without having to resort to hostile campaigns,” he said in an interview. “It’s then a question of whether you have the experience, skill set and track record to be influential.”
The firm usually takes a 5 percent to 20 percent stake and becomes “deeply engaged” with executives. The companies often face challenges that investors with a short-term focus can’t endure, said Zimmerman, who is based in Stockholm.
Cevian owns a stake in German steelmaker ThyssenKrupp AG and has pressed for a seat on the supervisory board. The investor wants to help make the company more profitable rather than “implement strategic objectives,” ThyssenKrupp said in March.
“We have no need to use tactics like some U.S. hostile activists, such as trying to publicly shame companies into submission,” Zimmerman said. Cevian sometimes plays “anchor investor,” helping executives “look past the short term to do the right thing for the long term.”
Kurt Bock, chief executive officer of Germany’s BASF SE, the world’s biggest chemical company, said he is doing more investor relations to ensure shareholders that the company’s assets fit together well.
BASF has felt ripples of activism, with “isolated events where some of these folks pop up and look for opportunities,” Bock said in May.
“Sometimes they come with ideas, asking in what I would describe as a constructive way, does this or that work,” he said. “So far, it looks like they understand the BASF story.”
That contrasts with the experience at Ashland Inc. Two months after Jana Partners LLC disclosed a stake last year, the Covington, Kentucky-based chemical maker began a review that resulted in the sale of a water-technology unit for about $1.8 billion. Most proceeds will be returned to investors through share buybacks.
In Europe, Royal DSM NV is ripe for activism because it’s the “starkest” example of “locked-in” value in the industry, with little synergy between its nutrition and materials divisions, according to Exane BNP’s Knight and Vesterinen.
With products spanning ingredients for baby food, resins for paint and plastics used in Mercedes-Benz cars, DSM may get pressure to split, the analysts said. The Heerlen, Netherlands-based company, the world’s largest vitamin maker, is valued at about $12.7 billion.
A DSM spokesman declined to comment on shareholder pressure and the shares were little changed at 51.44 euros as of 1:51 p.m. in Amsterdam.
While activism in Europe is rare, with 24 cases since 2012, companies targeted are often larger than in the U.S., law firm Freshfields Bruckhaus Deringer said in a January report. Size is no defense if a company is sitting on cash or underperforming assets, partner Piers Prichard Jones said.
BASF may be protected by its factory setup, a complex web in which byproducts at one plant become feedstock for another.
In Ludwigshafen, a pipeline for a compound used in fibers and coatings snakes overhead, feeding disparate operations at a plant that’s the size of all of Manhattan south of Times Square.
“It has like a kidney function,” CEO Bock said. And it may limit opportunities to separate portions of BASF. “Sometimes I have a day dream, if we had only one product. It would be kind of cute. It’s a bit more complex in our case.”