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March 11, 2019

Quoted companies unprepared for activist investor pressure, report finds

A new report has looked at whether UK corporates have strategies in place to deal with 'attacks' from activist investors.

By Leonie Barrie

UK-based quoted companies are ill-prepared to deal with ‘attacks’ from activist investors, a new report has revealed.

The survey-based report, released today (11 March), was carried out by consulting company AlixPartners. It quizzed senior executives at more than 500 publicly traded companies in the UK, France, Germany and Italy in December.

And the results show how vulnerable publicly traded companies in Europe feel following a surge of activism of late, including at European food businesses such as Nestlé, under pressure from Third Point and Premier Foods, which has been under fire from activist investor Oasis Management. 

Only 10% of polled executives said they could face up to activists successfully while over half (53%) admitted they lack a clear strategy to deal with approaches.

Over two thirds (70%) of the respondents were worried about the rise of activism.

Some 57% of all respondents believe that they will need to look to third-party support when managing activism. 

One of the perceived major barriers to increased preparedness is cost. 

According to one anonymous executive: “When you formalise, it means you immediately need to start baking things into plans that have cost and margin implications. In fact, even the process of understanding the implications brings cost.”   With the majority of company executives citing an increased concern about the rise of the activist threat, many point to technology facilitating the greater impact of activist approaches. 

One said: “Things have changed. To some degree it has crept up on us. These days it is easier to stir up activism. Like-minded groups are instantly connected and able to mobilise.” 

According to AlixPartners’ research, activists consistently target “the 5Cs”, all of which are in the board’s control and must form an integral part of an organisation’s day to day agenda. These include cost savings, cashflow and capital structure.

Eric Benedict, UK local market leader for AlixPartners, said: “While public companies recognise that activism is on the rise, there is a lack of clarity as to the pre-emptive steps they should be taking to protect themselves. The fact that so many are uncertain as to how to prepare means the door is increasingly ajar for activist entry. 

“It is important to note that activist approaches are very rarely founded upon ideas which are not visible to, nor under the direct control of, management teams.”

He added: “To meet this growing challenge executives must adopt, and constantly exhibit, the same ‘outside-in’ approach as those stalking them by marrying critical thinking with decisive action. The ability of boards to adopt an activist mindset of their own is the key to success.”

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