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Key trends in shareholder activism
i General overviewShareholder activism reached its first peak between 2000 and 2007, when various US and UK-based hedge funds targeted listed companies in the Netherlands. Examples included the financial conglomerate ABN AMRO, Dutch industrial giants ASMI and Stork, and other well-known multinationals such as Ahold and Philips.
This wave is partly explained by the (global) changes in the early 2000s of corporate law and corporate governance practice aiming to readjust the balance of power between shareholders and boards of directors by reinforcing shareholder rights. In the Netherlands, this new way of thinking resulted in, among others, the introduction of the right to place an item on the agenda in 2004. Not surprisingly, this also had an effect on the relationship between companies and their shareholders and, in some cases, even led to (long-term) conflicts between companies and activist shareholders. After the takeover saga concerning ABN AMRO (UK hedge fund TCI holding 1 per cent of ABN AMRO's stock demanded that the board actively pursued certain transactions, including a sale of the company, to maximise shareholder value), the pendulum regarding shareholder rights swung. By the end of the first decade of this century, the Dutch government introduced measures that limited shareholder rights, for example raising the threshold for shareholders to invoke the right to put an item on the agenda from 1 to 3 per cent. Together with case law that limited the topics on which shareholders could effectively exercise their right to put an item on the agenda, this had a large impact on the tactics used by activist shareholders (see subsection iv).
More generally, the surge in shareholder activism must also be seen in light of the global economy and macroeconomic conditions. The period after the 2007–2012 financial and economic crisis was characterised by an uplift in the global economy that, in combination with low interest rates, generated a boost in M&A activity and, consequently, increased shareholder activism activity. Although the global shareholder activism showed a downturn mid-2020 due to the covid-19 pandemic, global shareholder activism levels remained high in 2020 and 2021. Lazard reported 173 campaigns globally in 2021 of which 50 were initiated in Q4. While the United States accounts for the largest portion of activism, in 2020 approximately 30 per cent of global activism took place in Europe. The increased volatility of the global economy and stock markets since the invasion of Ukraine in Q1 2022 could very well result in increased levels of shareholder activism, with activist hedge funds facing increased pressure to generate returns on their investments. Q1 2022 already proved to be a busy quarter in terms of shareholder activism, with 73 globally initiated campaigns, higher than in any quarter since 2019.
Over the past decade, the Netherlands has seen numerous publicly known activist shareholder campaigns. The total level of shareholder activism is most likely significantly higher, however, since shareholder activism in the Netherlands often takes place behind closed doors.
Given the relatively low number of activist shareholder campaigns in the Netherlands compared with the United States and the United Kingdom, trends described in this section are not only based on statistics, but are also based on more subjective observations and anecdotal evidence.
ii Activist shareholders – the usual suspectsActivist shareholders in the Netherlands are predominantly US or UK-based hedge funds with a European or global investment focus. Activism comes from both pure-play activist hedge funds, which acquire a stake in a company and subsequently put pressure on the management to adopt their views to maximise shareholder value, and multi-strategy hedge funds, for which shareholder activism is only one of their strategies. Pure-play activist hedge funds typically have an event-driven investment strategy, in which M&A plays a crucial role (see below). These activist hedge funds often seek to initiate M&A activities by 'suggesting' that a company spin off or sell a division, and also become active in pending M&A transactions to push for a better price. Over the past decade, some of the largest global activist hedge funds and other activist (or immoderately vocal) shareholders have been active in the Netherlands; the most prominent examples are listed below.
Table 1
| Activist shareholder | Target | Objective |
|---|---|---|
| The Children's Investment Fund (TCI) | ABN AMRO | Pushing for a sale of ABN AMRO |
| Centaurus | Stork, Ahold (together with Paulson & Co) and SBM Offshore | Pushing for a split-up (Stork); selling US activities (Ahold); requesting a different financing structure (SBM Offshore) |
| Hermes | ASMI, and Océ (together with Orbis) | Pushing for a split-up and changes in board composition (ASMI); litigation against recommended takeover (Océ) |
| Third Point | DSM and Philips | Suggesting a split-up (DSM); stakebuilding (Philips) |
| RWC | Corbion and AMG | Stakebuilding (Corbion); discussions about strategy, board composition and board compensation (AMG) |
| Paulson & Co | Stork (together with Centaurus), KPN and Ahold (together with Centaurus) | Pushing for a split-up (Stork); stakebuilding (KPN); selling US activities (Ahold) |
| JANA Capital | Philips and TNT Express | Talks on performance and capital structure (Philips); pushing for a sale and changes in board composition (TNT Express) |
| Highfields Capital Management | Delta Lloyd | 'Vote no' campaign against Delta Lloyd's proposed rights offering |
| TT International | TomTom | Suggesting a split-up of TomTom into parts |
| Eminence Capital | ASMI | Pushing for sale of ASMI's 34 per cent stake in Asian subsidiary ASM PT |
| Elliott Advisors | AkzoNobel and NXP | Pressing for a takeover by PPG (AkzoNobel); contesting the agreed offer price in the takeover by Qualcomm (NXP) |
| PGGM, CalSTRS and the City of New York and the State of New York Pension Funds | Mylan | 'Vote no' campaign regarding board nominees and executive compensation package |
| ValueAct Capital | Royal Vopak | Stakebuilding |
| Elliott Advisors | Intertrust | Stakebuilding |
| Elliott Advisors | NN Group | Stakebuilding; discussions about undervaluation; return of capital to shareholders and strategic footprint |
| Follow This | Shell | Pushing for Shell's commitment to the Paris Climate Agreement's goals by scheduling 'green' resolutions on the agenda of Shell's general meeting |
| DavidsonKempner | QIAGEN | Contesting the agreed offer price in the takeover by Thermo Fisher |
| Lucerne Capital | Altice Europe | Contesting the agreed offer price in the takeover by Next Private, which entity is owned and controlled by Mr. Drahi, founder of Altice |
| Add Value Fund | Hunter Douglas | Contesting the agreed offer price in the takeover by Bergson Holdings, a company owned and controlled by Mr. Sonnenberg, executive chairman and majority shareholder (82.7% of ordinary shares) of Hunter Douglas |
| Cat Rock | Just Eat Takeaway | Pushing for a sale or spin-off of Grubhub; contesting the reappointment of the CFO and certain supervisory board members of Just Eat Takeaway |
| Elliott Advisors | AholdDelhaize | Pushing for the (partial) separation of AholdDelhaize's online marketplace bol.com. |
Over the years, we have seen increased attention to shareholder activism from institutional investors. Although we see that institutional investors are not unwilling to play a more active role as shareholders, institutional investors typically refrain from exercising public pressure on the companies they invest in and do not tend to carry out aggressive campaigns in the same way as pure-play activist hedge funds do. Private engagements to challenge boards remains preferred whereby institutional investors tend to focus on corporate governance issues, such as the remuneration policy and corporate social responsibility. In line with a recent global trend, Dutch institutional investors show an increasing focus on remuneration and ESG issues; some have actively challenged the companies they invest in to take more responsibility for their contribution to society. For example, Aegon pushed Dutch oil giant Shell to commit to the targets of the Paris Climate Agreement.
The trend of increased attention to shareholder activism from institutional investors is mainly driven by the fact that a vast majority of institutional investors invest through index funds in listed companies. Because positions in index funds cannot immediately be offloaded when a company's stock is underperforming, institutional investors turn to activism to bring the stock price back in line with, what they think, the value of a company's assets. Globally, we have witnessed several examples of traditional long-only funds embracing activist tactics and other institutional investors publicly supporting activist campaigns.16 Although most activism from institutional investors takes place behind closed doors, an example of institutional investors publicly expressing their position in a takeover situation is the 2014 public campaign that Dutch pension fund manager APG, together with Dutch insurer NN Group, waged against animal and fish feed company Nutreco. APG and NN Group disagreed with the board's decision to sell the company to SHV, claiming that the offer significantly undervalued Nutreco's business – while, at the same time, Cargill and private equity firm Permira had expressed their interest in Nutreco (although they did not make an offer). In a public letter, APG and NN Group questioned the Nutreco boards' decision to sell the company to SHV. Eventually, SHV raised its offer, and APG and NN Group sold their shares.
iv Targets for activist shareholders – size is no deterrenceOne of the other global trends also observed in the Netherlands, is activist shareholders expanding their focus to some of the largest companies. This is largely driven by the increased financial capacity of the large activist hedge funds. Globally, the total level of capital deployed for new activist campaigns in 2021 amounted to US$42 billion and in Q1 2022 it amounted to US$15.8 billion.17
In the Netherlands, this trend was first observed with hedge funds targeting Ahold in 2006 (market cap at that point over €10 billion), ABN AMRO in 2007 (market cap at that point over €50 billion) and Philips in 2007 (market cap at that point over €30 billion). In recent years, Shell (market cap over €130 billion) was targeted by activist shareholders, who were pushing for more focus on sustainable energy and a business model that is more climate change-proof. In 2017, Elliott Advisors targeted AkzoNobel (market cap around €20 billion) and NXP (market cap around €55 billion) and in 2020 Elliott Advisors targeted NN Group (market cap around € 13 billion). A company's large size thus does not deter activist shareholders.
v Objectives of activist shareholders – five common themesM&A situationsM&A has been a fertile hunting ground for activist shareholders; pushing for sales processes or, conversely, intervening in announced transactions (i.e., bumpitrage), and forcing break-ups and divestitures are illustrious objectives from an activist's playbook. TCI's public 'Dear Board' letter to ABN AMRO is notorious in this respect as it brought the bank into play, resulting in the largest ever takeover battle in the Netherlands. Other notable examples include AkzoNobel, where hedge fund Elliott Advisors pressured the company to engage with PPG after PPG's unsolicited proposals to takeover AkzoNobel; and ASMI, where Eminence Capital urged management to sell the company's 34 per cent stake in Asian subsidiary ASM PT. Elliott Advisors was found on the other side of the gamble at NXP, where it opposed the recommended offer made by Qualcomm for NXP, arguing that it had undervalued NXP. In light of the covid-19 pandemic, we have seen similar dynamics at QIAGEN, where Davidson Kempner opposed the recommended offer made by Thermo Fisher for QIAGEN; at Altice Europe, where Lucerne Capital contested the agreed offer price offered by Next Private; and at Hunter Douglas, where Add Value Fund opposed the agreed offer price offered by Bergson Holdings. The latter two received severe scrutiny by the investor community as these bids were initiated by the companies' majority shareholders, arguing that such offers made, rather opportunistically, use of the companies' low equity valuations during the pandemic. Globally, M&A situations account for approximately 40 per cent of all shareholder activism campaigns with shareholders increasingly opposing transactions. Given the record-breaking levels of M&A activity globally after the temporary slowdown in the first months after the outbreak of the covid-19 pandemic, we expect M&A situations to remain one of the key targets of activist campaigns.
Governance or board compositionActivist shareholders often target the governance structure and composition of the company's boards. Demands made by activist shareholders may include representation on the supervisory board, dismissal of certain board members, amendments to executive compensation or a challenge to the company's defence measures. Examples include TNT Express, where hedge fund JANA Capital requested the appointment of three new supervisory board members; AMG, where RWC questioned AMG's governance and remuneration practices; and Boskalis, which requested Fugro to dismantle (one of) its defence mechanisms.
Strategic and operational improvementsActivist investors have, in the past, pushed companies to make strategic changes and improve their performance. This is often part of campaigns aimed at breaking up or selling the company, as discussed directly above. A prominent example is ASMI, where two activist hedge funds – Hermes and Fursa – criticised the front- and back-end strategies of ASMI.
Capital returns and financial targetsIn several cases, activist investors demanded a return of capital to the shareholders in the form of a share buy-back or dividend payment. Well-known examples include Philips, where shareholders demanded that the capital raised by spinning off Philips' semiconductors unit NXP be returned to the shareholders, SBM Offshore, where Centaurus pressured the board to adopt a different financing structure for its fleet, and NN Group, where Elliott Advisors pushed for additional capital returns on an ongoing basis.
Conglomerate discountSeveral Dutch companies have been pressured by shareholders to unlock shareholder value by divesting or spinning off non-core divisions, or even by breaking up the company. The best-known examples include Ahold, where Paulson & Co and Centaurus demanded the sale of Ahold's US activities; Stork, where Paulson & Co and Centaurus pushed to break up the company; DSM, where Third Point pushed for a split-up; and ASMI, where Hermes campaigned for a split-up of the company's front- and back-end activities.
vi Tactics used by activist shareholdersTactics used until ABN AMRO (2007) and ASMI (2010) – proposals at general meetings to change the company's strategyBetween 2005 and 2010, several large activist hedge funds initiated aggressive US-style campaigns in the Netherlands. These hedge funds typically started their campaigns with 'Dear Board' letters in which they presented their ideas to the company. As a next step in their campaign, these hedge funds generally submitted shareholder proposals – to split up or sell the company, or to change the company's strategy – at the general meeting.
In several cases, the activist shareholders and the company ended up in court to determine who had the final say on the matter. In landmark cases – ABN AMRO and ASMI – the Supreme Court ruled that the company's strategy is within the remit of the executive board, subject to the approval of the supervisory board. As a result, shareholders cannot impose a strategy on the executive board that the executive board must then adhere to. If shareholders disagree with the execution of the strategy by the executive board, or otherwise disagree with how the executive board is running the company, they may attempt to exercise the specific powers vested in them in the DCC and the company's articles of association, such as the power to appoint and dismiss board members. These landmark cases most likely led to a change in how activist shareholders approach Dutch listed companies.
Tactics used in recent years – private and public engagement with the boards to force a change in the company's strategyAfter ABN AMRO and ASMI, activist shareholders rarely put forward shareholder resolutions directly aimed at forcing a change in strategy or a breakup of the company. Instead, activist shareholders now tend to raise the pressure by acquiring a stake, trying to influence the company's strategy through private or public engagement with the boards and sometimes publicly demanding changes in the board's composition.
Typically, activists that aim to change the company's strategy put pressure on the boards by challenging them on a broad spectrum of matters, such as the appointment and dismissal of board members, operational performance and board compensation. In an aggressive campaign, activist shareholders may demand that their own candidates replace incumbent board members.
As an example, this strategy was followed by US-based activist hedge fund JANA Capital against TNT Express. JANA put pressure on the board of TNT for a long period, both publicly and privately, in an effort to improve TNT's operational performance, with the aim of proving its potential to possible buyers. JANA demanded seats on the supervisory board, including one for a former M&A executive of UPS, which may have been seen by some as an attempt by JANA to facilitate a deal between TNT and UPS (TNT was eventually acquired in a friendly deal by FedEx in 2016). More recently, the tactic of trying to influence the strategy of the company, by putting pressure on the boards, was adopted by Elliott Advisors against AkzoNobel in 2017 and against NN Group in 2020.
Direct confrontations between boards and activist shareholders at general meetings are now generally restricted to topics on which the general meeting has the power to resolve, such as board composition, annual accounts, compensation policy and executive compensation. This trend seems to be largely influenced by landmark cases concerning ABN AMRO and ASMI – case law that was recently confirmed by the Enterprise Chamber in the AkzoNobel case. In addition, in the Fugro case, Dutch courts barred shareholders from putting pressure on the executive board, by demanding a referendum vote on a topic on which the general meeting cannot resolve.
vii Higher prioritisation of ESG issuesAnother global trend that has made its way to the Netherlands over the past few years is that shareholders, both financial and institutional investors, increasingly demand companies to address ESG issues. ESG has become a major corporate governance topic in recent years, reflecting sentiments from a broad group of stakeholders, including customers, employees, suppliers and society as a whole. Activist shareholders and institutional investors alike have taken note of these sentiments, and they are keen to include ESG matters in their campaigns and investment policies. In 2018, for example, Dutch pension fund ABP announced that it would exclude tobacco and nuclear weapons products from its investments. ABP stated that it reached its decision 'after extensive consultation at board level, based on the insights shared by participants in the pension scheme, employers, and various special interest organizations'.18
Dutch (institutional) investors are particularly involved in environmental matters. For example, ABP, Aegon Asset Management, APG, NN Investment Partners and Robeco are part of Climate Action 100+, a five-year initiative to engage important greenhouse gas emitters and other companies that have significant opportunities to drive the clean energy transition and help achieve the goals of the Paris Climate Agreement. In 2019, Climate Action 100+ filed a climate resolution with British oil and gas company BP, demanding (1) a strategy consistent with the Paris Climate Agreement; (2) a formulation of climate ambitions and goals for the short-, medium- and long-term; and (3) an annual report on the foregoing. The resolution gained support from several senior executives of BP. Globally, the pressure on listed companies with respect to ESG issues is mounting. We expect this trend to intensify over the coming years, with climate change currently being one of the key topics in global politics, legislators worldwide adopting stricter disclosure requirements with respect to climate change and carbon emissions, and more and more companies facing pressure from interest groups, investors and society at large to adopt a climate change strategy and take actions to limit global warming in line with the Paris Accord. Although the voting topics at general meetings are now generally restricted to those on which the general meeting has the power to resolve, we can nevertheless expect that shareholders will more frequently request companies to discuss climate change commitments and strategy at the general meeting.
Recent shareholder activism campaigns
i Boskalis v. Fugro (2016)Dutch dredging contractor Boskalis built up an unsolicited stake of more than 20 per cent in Dutch geoscience service provider Fugro and subsequently submitted an agenda item for the general meeting – urging the boards to take down one of Fugro's defence measures. Fugro agreed to put Boskalis' proposal on the agenda for discussion purposes – but not as a voting item – because decisions regarding defensive measures are part of the company's strategy and therefore the exclusive domain of the boards. Boskalis challenged this decision in court, but without success in both first instance and on appeal. In April 2018, the Supreme Court confirmed that shareholders do not have a right to table voting items on the agenda of a public company's general meeting in respect of matters that are for the board to decide upon, including the policy and strategy of the company.
ii Elliott Advisors v. AkzoNobel (2017)In 2017, Dutch paint producer AkzoNobel received three unsolicited takeover proposals from its US competitor PPG Industries. Elliott Advisors demanded that AkzoNobel enter into discussions with PPG. After AkzoNobel rejected the first two proposals from PPG, Elliott Advisors – together with certain other shareholders – requested that AkzoNobel convene a shareholders' meeting with the sole agenda item being the dismissal of the chair of AkzoNobel's supervisory board. This request was rejected by AkzoNobel. After AkzoNobel subsequently rejected PPG's third proposal in May, Elliott Advisors filed a petition with the Enterprise Chamber requesting an inquiry into AkzoNobel's conduct and policies, as well as requesting certain interim measures, including an extraordinary general meeting to vote on the dismissal of the chair of AkzoNobel's supervisory board, whom Elliott believed was standing in the way of a discussion with PPG. The Enterprise Chamber dismissed Elliott Advisors' requests and set out important viewpoints for corporate governance in takeover situations.
First, the Enterprise Chamber ruled that a company's response to an unsolicited takeover proposal falls under the authority of the executive board to determine the company's strategy, under the supervision of the supervisory board. The company's boards do not have to consult shareholders prior to their response to an unsolicited takeover proposal (although they remain accountable to their shareholders for their corporate actions). Second, the ruling confirmed that there is no general obligation for a target company to enter into substantive discussions or negotiations with a bidder that has made an unsolicited takeover proposal, even in the case of a serious bidder making a credible offer. Whether substantive discussions or negotiations with a bidder are required depends on the actual circumstances; for example, to what extent the company can assess the proposal without substantive discussions, the bidder's strategic intentions and whether the target company has decided to abandon its standalone strategy. After this landmark ruling by the Enterprise Chamber, on 1 June 2017, PPG announced the withdrawal of its takeover proposal for AkzoNobel.
In July 2017, Elliott Advisors initiated proceedings before the Amsterdam District Court requesting an extraordinary general meeting with the dismissal of AkzoNobel's chair as sole agenda item. AkzoNobel subsequently convened an EGM itself, to be held in September 2018, where AkzoNobel would give further explanation regarding its response to the proposals made by PPG. The dismissal of AkzoNobel's chair was not tabled on the agenda of that EGM. In early August 2017, the Amsterdam District Court rejected the request from Elliott Advisors to convene an EGM and ruled that Elliott Advisors should, before requesting the dismissal of the chair of AkzoNobel, await the explanation AkzoNobel were to provide regarding its response to PPG's proposals during the EGM in September 2018. On 16 August 2017, AkzoNobel announced that it had reached a standstill agreement with Elliott Advisors.19
iii Elliott Advisors v. NXP and Qualcomm (2018)On 27 October 2016, Dutch chipmaker NXP Semiconductors and US technology company Qualcomm announced that they had reached agreement on Qualcomm's acquisition of NXP at a price of US$110 per share; this valued NXP at US$47 billion, making it Europe's largest ever tech deal. The announcement of the transaction attracted attention, from both the investor community and from regulators around the globe, and showed the growing importance of antitrust and state intervention in M&A deals.
In August 2017, Elliott Advisors joined the party by acquiring approximately 6 per cent of NXP's stock. During the campaign, which showed levels of aggression reminiscent of its AkzoNobel campaign, Elliott argued that NXP's board did not achieve the best deal for NXP's shareholders; in Elliott's words, the consideration offered by Qualcomm 'dramatically undervalued' NXP. Elliott's tactics included launching a website with analyses in support of its claim in an effort to persuade NXP shareholders not to tender their shares 'for less than fair value'. Later that year, on 6 November 2017, Singapore-based Broadcom raised the number of players to four, announcing an US$130 billion bid for Qualcomm. Broadcom's unsolicited bid for its rival would create the largest tech company in the world. Broadcom's offer was indifferent on Qualcomm completing its bid for NXP, turning the scene into a classic capitalist multiplayer chess game.
The battle of NXP and Qualcomm versus Elliott – a textbook example of bumpitrage – eventually ended with Qualcomm improving the terms of the transaction. Qualcomm increased the cash consideration payable to the NXP shareholders to US$127.50 per share – an increase of 16 per cent, or approximately US$5.9 billion in aggregate equity value, on the prior offer price. In exchange, Elliott – together with eight other NXP shareholders collectively owning approximately 28 per cent of NXP's stock (including New York-based hedge fund Soroban Capital Partners) – expressed their support for the new deal. In response, Broadcom cut its offer consideration for Qualcomm – which, by then, had been increased – to US$117 billion. Eventually, Broadcom was forced to withdraw its bid after President Trump issued an executive order blocking the proposed transaction. In doing so, President Trump acted on a recommendation by the Committee on Foreign Investment in the United States (CFIUS), which, after reviewing the combination, had concluded that Broadcom 'might take action that threatens to impair the national security of the United States'.20 Later, in 2018, Broadcom completed its redomiciliation to the United States.
Qualcomm's pursuit of NXP also attracted regulatory scrutiny, particularly from the State Administration for Market Regulation (SAMR) of China. In June 2018, after Qualcomm had extended the offer period multiple times, SAMR refused to grant clearance for the proposed deal. Subsequently, Qualcomm chose not to close the transaction, incurring an US$2 billion break-up fee payable to NXP.
iv Elliott Advisors v. NN Group (2020)On 17 February 2020, Elliott Advisors reported that it had acquired a stake of more than 3 per cent in Dutch insurance company NN Group. Elliott Advisors later announced that it had teamed up with Dieter Wemmer, a veteran in the insurance industry and former executive at Allianz and Zurich Insurance Group – a tactic more commonly used by activist shareholders.
After several months of private discussions with the management of NN Group, Elliott Advisors launched a public campaign on 12 June 2020, only two weeks before NN Group was to present its strategic priorities and new targets at its Capital Markets Day.21 Rather than engaging in a frontal attack on NN Group, Elliott Advisors stressed its conviction in NN Group's underlying value and future prospects, which it believed not to be properly reflected in NN Group's current stock price. In a presentation counting 67 pages, Elliott Advisors outlined its views on NN Group's strengths and alleged persistent undervaluation and urged NN Group to use the Capital Markets Day to address these issues. Elliott Advisors also pushed for increased capital returns and portfolio optimisation.
In response, NN Group stated that it had taken note of the publication by Elliott Advisors and confirmed that it had engaged with Elliott Advisors. At the Capital Markets Day, NN Group seemingly presented its own plans focused on creating sustainable value. In fact, NN Group did not mention Elliott Advisors once in its presentation. In an interview with the Dutch financial newspaper, NN Group's CEO, David Knibbe, explained that NN Group had already been working on many of the topics addressed in Elliott Advisors' presentation for a while.
