Shareholder activist strategies

Strategies

What common strategies do activist shareholders use to pursue their objectives?

Depending on the type of activist, its goals and the company’s takeover defences, activists may use a number of different tactics to pursue their objectives, such as:

  • privately engaging through informal discussions or ‘dear board’ letters (the starting point of most activist campaigns and the preferred tool of most institutional investors);
  • publicly criticising a company’s strategy, governance or performance or calling for a sale, break-up, return of capital or increased offer price (‘bumpitrage’);
  • short-selling stock and starting a public campaign to drive down stock prices;
  • stakebuilding to build up pressure on the boards and signal seriousness;
  • partnering with a hostile bidder;
  • participating in and voting at general meetings;
  • orchestrating a ‘vote-no’ campaign;
  • making a shareholders’ proposal or requesting an EGM be convened; or
  • initiating litigation
Processes and guidelines

What are the general processes and guidelines for shareholders’ proposals?

Shareholders representing individually or collectively at least 5 per cent of a Luxembourg company’s capital request, for listed entities falling within the scope of the Shareholder Act or 10 per cent for the other entities, as the case may be, have the right to amend a notice to the shareholder meeting and add additional items on the agenda. The company may refuse to put an item on the agenda as a voting item (rather than a discussion item), if it concerns a matter that falls outside the power of the general meeting. In addition, shareholders representing 10 per cent of a company’s share capital may force the board to postpone a general meeting of shareholders for a period of up to four weeks.

May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?

Even if director nomination is typically made via the company’s nomination committee, any shareholder holding at least 5 per cent for listed entities falling within the scope of the Shareholder Act or 10 per cent for the other entities, as the case may be, has the right to amend a notice to the shareholder meeting and add the nomination of directors for election.

May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?

Shareholders representing individually or collectively at least 10 per cent of a Luxembourg company’s capital (or such lower percentage as prescribed in the company’s articles) may request of the the board that a general meeting be convened. The request must set out in detail the matters to be discussed. If the board has not taken the steps necessary to hold a general meeting within one month (if the company’s shares are not listed on a regulated market within the EEA) of the request, the requesting shareholders may be authorised by the district court in preliminary relief proceedings to convene a general meeting provided that they have a reasonable interest in holding the meeting.

No written resolutions can be taken.

Litigation

What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?

Shareholders can seek nullification of corporate resolutions (arguing, for instance, that the resolution is contrary to the company’s interest) or bring wrongful act claims against companies or its directors (arguing that a particular conduct of the company or its directors constituted a tort against the claimant).

Derivative actions do not exist under Luxembourg law. Luxembourg law does not provide for class actions.

During the annual general meeting, the shareholders can question the board on all aspects of the company’s management, accounting and so forth throughout the year, and may withhold the granting of discharge.

The right of shareholders to ask questions during the meeting and to receive answers to their questions is legally enshrined.

Under the Shareholder Act, in addition to the right to ask questions orally during a meeting, shareholders may have the right to pose written questions about the items on the agenda before the meeting is held. If provided for in a company’s articles of association, questions may be asked as soon as the convening notice for the general meeting is published. The company’s articles of association will furthermore provide the cut-off time by which the company should have received the written questions.

Apart from several specific circumstances (eg, in the case of confidential information), the company must answer any questions addressed to it. Should several questions relate to the same topic, the company may publish a detailed questions and answers document on its website, in which case the chair should draw the shareholders’ attention to the publication.

The Companies Act also allows shareholders to submit questions to management outside a meeting. Any shareholder representing at least 10 per cent of the company’s share capital or voting rights, or both, can ask the board of directors or management body questions about the management and operations of the company or one of its affiliates, without the need for extraordinary circumstances. If the company’s board or management body fails to answer these questions within one month, the shareholders may petition, as in summary proceedings, the president of the district court responsible for commercial matters to appoint one or more independent experts to draw up a report on the issues to which the questions relate.

Certain matters must also be reported to the shareholders, such as any director’s conflict of interest relating to voting on a resolution.

While the concept of discovery does not exist under Luxembourg law, a party with a legitimate interest may submit a motion to the court demanding the production of specified documents pertaining to a legal relationship to which the requesting party or its legal predecessor is a party.