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Grateful goal:
Activist investors are increasingly expected in the energy sector
Photo: Jochen Tack / imago images/Jochen Tack
It was a report that caused a stir in the global financial world last week: Siemens' ailing rival Toshiba is apparently bowing to its attackers after years of dispute.
In the run-up to next month's annual general meeting, the Japanese group has proposed several external candidates for the supervisory board - including two delegates from activist hedge funds.
After several attempts to restructure the scandal-ridden group failed, the aggressive investors should be a step closer to their goal: taking Toshiba off the stock exchange.
Above all, the US investment company Farallon Capital Management, which has around six percent of Toshiba shares, has long wanted Toshiba to continue as a private company and thus get maximum profit from its efforts.
Now
Eijiro Imai
, Managing Director at Farallon, is to move to the board.
In addition, the hedge fund Elliott led by
Paul Singer
(77) is to have a seat:
Nabeel Bhanji
is to sit on the executive committee for the world's largest activist fund.
The personal details are considered a possible turning point in the ongoing conflict over one of the best-known industrial groups in the world.
And as part of the investors' new strategy.
Once again, however, the focus is also on the business model of the activist funds.
They usually try to gain influence over management and other investors by acquiring smaller blocks of shares – if necessary by publicly pressuring the board of directors.
The list of Elliott victims, for example, is long, in Germany the hedge fund was involved with Thyssenkrupp or Bayer.
Elliott was also involved in the merger of the real estate groups Vonovia and Deutsche Wohnen.
The potential Toshiba supervisor Bhanji was just back in Germany to look for business opportunities.
64 companies are "extremely vulnerable"
According to a study by the Boston Consulting Group (BCG), Germany is currently a lucrative market for activist investors.
BCG partner
Rüdiger Wolf
and co-author
Johannes Burkhardt
examined 430 companies, each with a market capitalization of at least 100 million euros and a free float of at least five percent.
"For example, we examined whether a share price corresponds to the goals of the activists and how high the debt ratio is within the capital structure," says Burkhardt.
Their alarming result: 64 companies in Germany, Austria and Switzerland are currently "extremely at risk" of being attacked.
Activist hedge funds are usually attracted to declining stock prices or structural problems in the company.
Unlike in the US, however, performance is "not one of the primary factors," says Burkhardt.
The corona pandemic has shown how efficient many companies have remained despite the crisis.
The activists would therefore rather look at the capital structure and financing policy of the companies.
According to Burkhardt, the corporate strategy is then one of the largest areas of attack.
Rather than higher dividends or share buybacks, activists would focus on leadership and call for business streamlining.
"Although the number of new attacks has remained the same, the number of existing participations has steadily increased," says Wolf.
This shows that many activists would pursue long-term strategies.
Elliott is now also taking on a longer-term role in some companies.
What is new, for example, is that the fund now sends emissaries to committees itself, as with Toshiba, or even takes companies off the stock exchange together with other investors.
In such a case, the hedge fund remains in a consortium as long as the target company is trimmed in value.
The logic behind it: If they sell it a few years later, the activists want to earn even more.
Fewer attacks in public
The BCG study also shows how the image of traditional hedge fund activists has changed.
"We are also increasingly observing asset managers who interfere in corporate management," says author Wolf.
So-called ESG topics are particularly relevant.
ESG stands for Environment (Environmental), Social (Social) and Responsible Corporate Management (Governance).
Funds are urging management to implement their climate protection plans more quickly.
In Germany, the mini-investor Enkraft Capital recently tried this.
The hedge fund tried to put management under pressure and demanded that the climate-damaging lignite business be spun off.
But the investor failed in the vote at the energy supplier's general meeting: 97 percent of the shareholders voted against the separation motion.
Actually, the time of loud attacks is over.
According to the BCG study, it is striking that activists act less in public than in previous years.
Unlike in the USA, it is not common in Germany to drive attacks in public.
Such campaigns are expensive, often costing millions of dollars.
In addition, there have been cases in the past in which large investors have placed themselves in front of the management to protect them.
"Then a campaign by activist investors is as good as dead," says Burkhardt.
Increased attacks expected in automotive and energy sectors
Wolf and Burkhardt carried out the study before the war in Ukraine.
This temporarily slowed down the activist investors again.
"As long as volatility is high, investors prefer to keep their money dry," says Wolf.
The same applies to activists.
Therefore, there is currently a little more restraint.
"We continue to expect that the crisis will give more indications of activist attacks and that the number will therefore continue to increase," said Wolf.
Due to more price fluctuations on the stock exchange, there are also more weak phases.
The consultants expect a significant surge in attacks, especially in the automotive and energy sectors.
"With the dramatic industrial change, an incredible amount will still happen in the sectors," predicts Wolf.
Companies should therefore regularly check whether activists are already part of their group of shareholders.
It can often take several years before an attack occurs.