Brexit Vote Creates Buying Opportunity for Activist Investorsby
SABMiller, William Hill, Entertainment One in funds’ sights
After pound’s fall, U.K. valuations ‘extremely compelling’
The U.K.’s vote to leave the European Union has shaken financial markets and raised alarms about the country’s economy, but it may have made Britain more attractive to activist investors.
Since the June 23 EU referendum, funds that agitate for changes in corporate strategy or seek board seats in an effort to lift share prices have stepped up their presence at a growing number of London-listed companies, from brewer SABMiller Plc to bookmaker William Hill Plc to television and film distributor Entertainment One Ltd.
Activists like Livermore Partners Inc. and Crystal Amber Fund Ltd. say the Brexit vote has created opportunities by driving down the pound and the share prices of some U.K. companies. The increased affordability of U.K. assets more than makes up for uncertainties prompted by the referendum, they say.
“In our experience, Brexit is acting as a catalyst for activist investors,” said Richard Bernstein, chief executive officer of Crystal Amber. “There’s a raft of established U.K. companies with decent balance sheets and sound market positioning that have seen their shares rerated because of the uncertainty. The depreciation of sterling has also made corporate assets more attractive to overseas investors.”
Research firm Activist Insight tracked six new campaigns involving U.K. companies since June 30, bringing the total for the year to 30 -- four more than in all of 2015. That’s still well below the 305 campaigns tallied by New York-based law firm Schulte Roth & Zabel in the U.S. last year, up from 110 in 2010.
Some U.S.-based activists spotted U.K. opportunities prior to the referendum. San Francisco-based fund ValueAct Capital Management LLC in March secured a board seat at Rolls-Royce Holdings Plc, the aircraft engine-maker. Last October Scottish investment firm Alliance Trust Plc yielded to New York-based Elliott Management Corp., saying its CEO would step down after the hedge fund criticized Alliance’s financial performance.
Since the vote Elliott has increased its activities in the U.K., helping to secure higher offers at two companies subject to takeover bids -- a tactic known as bumpitrage. Elliott, run by Paul Singer, this month disclosed that its stake in Meggitt Plc surpassed 5 percent, sending the aerospace parts maker’s shares surging on speculation about a change in strategy or M&A activity.
Elliott was one of the investors that led a rebellion against Anheuser-Busch InBev NV’s bid for rival brewer SAB Miller Plc, prompting the suitor to raise its offer. Brexit was the catalyst for its move, with the fall in sterling making ABInBev’s original offer less appealing.
Elliott also helped Poundland Group Plc, a U.K. variety-store operator, secure a higher bid from South African retailer Steinhoff International Holdings NV by building a stake that could have derailed a deal.
Last week Entertainment One, which owns the “Peppa Pig” children’s television franchise, rejected a takeover offer worth about 1 billion pounds from ($1.3 billion) U.K. broadcaster ITV Plc -- a decision that was endorsed by Livermore Partners. The hedge fund, which bought a stake in Entertainment One earlier this year, said it favored a sale at a higher price.
“We like U.K. assets,” said David Neuhauser, managing director of Livermore, which is based in Northbrook, Illinois. He said in a telephone interview that the depreciation of sterling has made U.K. valuations look “extremely compelling.”
U.K.-focused funds are growing more active, too. Crystal Amber, based in Guernsey, is an investor in U.K. residential property owner Grainger Plc, believing it to be undervalued, and agitated for change at Pinewood Group Plc, which operates the film studios where James Bond movies have been shot. Pinewood on Friday confirmed plans for a £323.3 million sale to private-equity investors.
London-based Parvus Asset Management holds a roughly 10 percent stake in William Hill, which on Monday rejected an increased 3.1 billion-pound ($4 billion) takeover bid from 888 Holdings Plc and Rank Group Plc. Parvus also said this month that it had increased its stake in AA group, , a U.K. automotive assistance provider that is struggling with a declining membership, to 15.2 percent.
Among other activist campaigns, U.K. hedge fund Toscafund Asset Management LLP is calling for the resignation of Jan Astrand, executive chairman of tool rental firm Speedy Hire Plc, in which the fund is the largest shareholder. Toscafund has objected to Astrand’s decision to pull out of a planned merger with rival rental firm HSS Hire Group Plc.
Jan Weber, who is responsible for shareholder activism in Europe at Morgan Stanley, said the uptick in investor campaigns predated the Brexit vote, but the referendum appears to have given it a boost.
“We feared we might see a halt to this growth in the U.K., but that doesn’t seem to be the case,” he said. “U.S. activists are looking through Brexit.”