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US activist investors' aggressive strategies are starting to force change in Europe

Key Points
  • A recent example of activist success in Europe came on Monday in the form of a proposed merger between Just Eat and Takeaway.com to form a £9 billion ($10 billion) food delivery giant. Connecticut-based activist fund Cat Rock Capital owns stakes in both companies.
  • Paul Singer's hedge fund Elliott Management has outpaced rivals when it comes to deploying capital aimed at driving corporate change to mainland Europe, and particularly Germany, committing $3.4 billion in new capital across the first six months of 2019, according to Lazard data.
Paul Singer speaking at the Delivering Alpha conference in New York on Sept. 13, 2016.
David A. Grogan | CNBC

Wall Street's top activist investors are taking on an increasing prominence in Europe, with over $82 billion of capital now invested by shareholders publicly trying to force change in companies.

Activist investors are individuals or groups that purchase substantial amounts of shares of a public company in an attempt to obtain seats on the board and change how it operates.

While the likes of hedge fund executives Bill Ackman, Carl Icahn and Paul Singer have long been household names on Wall Street, European corporations are now feeling the pressure from the expansion of stateside activist players.

A recent example of activist success in Europe came on Monday in the form of a proposed merger between Just Eat and Takeaway.com to form a £9 billion ($10 billion) food delivery giant.

For the past two or three years, we've seen quite a bit of what I would call the new style of activism in Europe.
Rich Thomas
head of European shareholder advisory, Lazard

Connecticut-based activist fund Cat Rock Capital owns a 2.5% stake in Just Eat and 4% of Takeaway.com, and has publicly banged the drum for Just Eat to pursue a merger with a rival for quite some time.

Alex Captain, founder and managing partner of Cat Rock Capital, said in a statement on Monday that the Just Eat board's "clear and decisive action" would allow "long-term shareholders to participate meaningfully in future value creation."

AJ Bell Investment Director Russ Mould said in a note on Monday that "it remains to be seen if Cat Rock can take all the credit for the strategic development, yet it seems to have had a major influence," adding that this was "quite remarkable" considering its relatively small stake.

"It goes to show that activists are increasingly powerful and that putting pressure on a business in the public domain can often achieve results fairly quickly," Mould added.

Less patient, more aggressive capital

Singer's hedge fund Elliott Management Corp has outpaced rivals when it comes to deploying capital aimed at driving corporate change to mainland Europe, and particularly Germany, committing $3.4 billion in new capital across the first six months of 2019, according to Lazard data.

Elliott has significant investments in pharmaceutical and life sciences company Bayer and software firm SAP, along with Thyssenkrupp, Uniper and Gea.

Rich Thomas, head of European shareholder advisory at Lazard, told CNBC's "Street Signs Europe" earlier this month that activist hedge funds are looking for ways to deploy capital into good value opportunities, which is driving the spread of activism across the Atlantic.

"From a real dominant trend that we've seen for the past five, six, seven years now in the U.S., it's now expanding globally. For the past two or three years, we've seen quite a bit of what I would call the new style of activism in Europe," he said.

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"It's changing, and Elliott as one example is really leading the way in showing how a less patient, more aggressive style, more strategic in their orientation can be effective, not just in the U.S. but in Europe as well."

Thomas highlighted that in the first half of the year, 46% of campaigns were about strategy and M&A encouragement, rather than simply focusing on balance sheets and returns to shareholders, showing that the new breed of activism is " really going at the fundamentals of who a company is."

"We're seeing activism really grow as a catalyst for these types of deals. Frequently, especially on the large cap, it's about portfolio streamlining, simplification, break-ups," Thomas said.

"Often more on the smaller and mid-cap, it's about putting a company up for sale if it is failing to achieve the valuation it should in the public markets."

Banks under fire

The beleaguered European banking sector also felt the wrath of shareholder activism during the last annual general meeting (AGM) season.

In May, Barclays saw off a spirited effort from activist investor Edward Bramson and his hedge fund Sherborne Investors to gain seats on its board. Bramson had long been sparring with the British lender to push for the shrinking of its struggling investment bank, in order to improve returns to shareholders.

But it wasn't just the hedge fund giants the European banks had to worry about. RBS and HSBC executives faced pressure from domestic shareholder societies and advisory bodies over remuneration and pension packages for top executives.

Meanwhile Deutsche Bank chairman Paul Achleitner survived a motion for his removal by a substantial portion of shareholders, as the German lender's share price continued to slide amid a raft of scandals and structural difficulties. Deutsche has since implemented a mass restructuring scheme which involves the closure of its equities business and will see 18,000 jobs cut by 2022.

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