Wednesday, May 4, 2011

Elliott's European Strategic Activism Gets Heated

European shareholder activist Elliott Advisors is currently in the heat of two proxy fights between two very different mid-cap companies: one a Swiss biotech company; the other, a British transport company. While the firms are in completely different markets, Elliott Advisors is, interestingly, still employing the same type of activism on both. Namely, the activist has been pressuring both companies to explore strategic alternatives--an initiative that the managements of both targets claim put a quick profit over long-term value creation. At the same time, a major part of Elliott's activism has focused on addressing how the companies should expand in respect to either entering new markets or refocusing R&D. Below are summaries about Elliott's proxy contests at these two companies.

Actelion Ltd. (ATLN.VX)
Annual Meeting: May 5

Elliott Advisors is seeking a controlling position on the board of Actelion after the Swiss biotech company had a series of product failures. The activist, which owns more than 5% of the company, has nominated 6 independent individuals to the 9-member board. To no avail, management has currently made several concessions to Elliott--like repurchasing 800 million CHF worth of shares and nominating replacements for the aging Chairman and CEO--in order to avert a proxy fight. The annual meeting, scheduled for May 5, will be particularly momentous as the current board's agenda is essentially diametrically opposed to that of Elliott.

The activist has been critical of the firm's strategy and research pipeline--which it has called "high-risk", "runaway", "unfocused", and "unsuccessful"--as well as the firm's management oversight, which it claims is "destroying value for all stakeholders". In particular, the nominees of Elliott aim to slash R&D and explore a sale. Elliott has asked that the biotech company make public previous offers it received, claiming: "In our recent meetings with shareholders the overwhelming response continues to be that the current board of Actelion and its founders are not willing to have an open and comprehensive discussion about the company's strategic alternatives". The hedge fund also took aim at the company's management structure, arguing that "the company's decision-making process is too centralized" with too many executives reporting to the CEO.

Many had expected that, following the release of failed products, Actelion would receive a buyout offer as high as 9 billion francs, which values the firm at more than 30% premium to its current market cap of 6.9 billion CHF. The company's board, however, states that it has never received a bid and was never interested in receiving one. Rather, the board is focused on just the opposite--expanding the firm through acquisitions and releasing new products. On April 19, ISS questioned whether this "is the right strategy anymore" for the company to take and subsequently recommended a vote against the chairman and for three Elliott nominees and the activist's proposal to eliminate restriction on size of board (although the recommendation was essentially split). On the other hand, proxy advisors IVOX, Glass Lewis, and Ethos, have supported all of Actelion's nominees. Further, the company has also received backing from shareholders Rudolf Maag and BB Biotech, which together own 10% of the company. By contrast, Elliott--as the largest shareholder--owns roughly more than 5% and is expected to have the backing of the other shares owned by hedge funds, which amount to 15%. Analysis conducted by Georgeson expects approximately 50-55 percent of shareholders to vote their shares and that "Elliott has confirmations from 20 percent of shareholders and the likely support of another 15 percent from subscribers of ISS".

National Express (LON:NEX)
Annual Meeting: May 10

Elliott Advisors is also rattling cages at National Express. The hedge fund, which owns approximately 17.5% of the bus and rail company, has nominated three individuals to the 9-member board. Like Actelion, National Express has also argued that Elliott is waging a proxy fight in order to pressure the company into a sale, which management claims will ultimately be to the detriment of long-term value. Alternatively, the activist claims it is aiming to get the company to pursue aggressive growth in new markets and explore strategic alternatives that may value the company at around a 55% premium to its current market cap of $1.3 billion. The transport group, Elliott claims, will face significant challenges in the years ahead due to consolidation and liberalization in European mass transit, and that it is therefore "critical" that the company refocus investments in America and explore selling off assets elsewhere. Mark Levine, Elliott's manager in charge of the National Express investment, argues that the transport company is "trading at a big discount to the sum of [its] parts" and that its "composition of... non-executive board members has not changed since 2007"According to Bloomberg, the hedge fund is unlikely to receive support from 13% owner M&G Investment Management. However, Elliott states that it has support from Spain's Cosmen family, which owns 17.5% of the company, and only needs 15.2% more backing in order to prevail in its proxy fight. With that said, both ISS and Glass Lewis have disclosed support for management.

Posted by David Schatz