US and European active investors are targeting some of the UK’s biggest publicly traded companies, taking advantage of the collapse in stock prices to push the company’s breakdown and other changes.
Florida-based hedge fund Elliott Management Corp is making waves at UK pharmaceutical giant GlaxoSmithKline plc and SSE plc, an electricity network and alternative energy provider. Daniel Loeb’s Third Point LLC is calling for the dissolution of Shell plc. And Troian Fund Management LP, another well-known US activist hedge fund headed by Nelson Peltz, owns a stake in Unilever Plc, The Wall Street Journal reported last month.
In the latest instance, Europe’s Savian Capital has picked up an undisclosed stake in Vodafone Group Plc, according to a person familiar with the matter. The active investor wants the $47.6 billion UK-based telecom operator to consider refreshing its board with new directors who have telecommunications experience. It is also pushing the company to consider acquisitions to strengthen the mobile sector in the UK and elsewhere in Europe.
The flurry of activity shows how ripe the UK market is for particularly active campaigns. With a total market cap of approximately $2.7 trillion, the London Stock Exchange’s blue-chip FTSE 100 benchmark is one of Europe’s largest indexes, providing investors with a pool of large-cap candidates. At the same time, the market has become cheaper due to individual company missteps, the relative shortage of high-growth technology companies that thrived during the pandemic and the economic fallout from Britain’s divorce from the European Union.
The FTSE 100 trades at a discount in some of the major markets in Europe and the Americas. According to FactSet, it has a forward price-to-earnings ratio — which measures stock prices as a multiplier of potential future profits — about 12 times. Germany’s DAX index is around 14x, France’s CAC 40 is 15x and the S&P 500 is about 20x.
Sharon Bell, European equity strategist at Goldman Sachs Group Inc., said: “The opportunity to restructure businesses, the improvement in lower returns in recent years, makes the UK attractive to active investors, private equity or other global investors.”
Vodafone has already taken steps to boost its share price, last year selling a minority stake in its German-based cell tower business at a valuation of €12.1 billion, which equates to $13.6 billion. In November, Vodafone chief executive Nick Read also indicated his interest in consolidation in markets in Southern Europe to help offset price wars.
Still, the company’s stock has underperformed the overall market over the past five years and has been an industry laggard over the same period, underscoring Savian’s bet that moves like board changes could reignite the stock price.
According to FactSet, the stock is down more than 7% compared to a 27% gain in the FTSE 100, including dividends.
With Vodafone “the market is getting impatient”, said Mandeep Singh, a technology, media and telecom sales specialist at Redburn Ltd., an equity research provider. “Sevian will be an external catalyst that can put pressure on management and the board to act more quickly, Mr. Singh said.
However, any attempt by Savian to influence Vodafone is no guarantee of success, as evidenced by Elliott’s ongoing battle with SSE.
In November, SSE decided to spin off its renewable power generation business in an initial public offering to boost value—a plan Elliott had been discussing with the company for months. The SSE stock is down about 3.6% and has outperformed the Euro Stokes Utilities Index since the company’s decision.
SSE supported the cut in dividend to sell stake in its network business and boost investment in renewable energy business. It sets the stage for a possible proxy fight over board seats if the two sides cannot reach a compromise.
Elliott declined to comment.
That said, a study by Alvarez & Marsal Holdings LLC, a New York-based professional services firm, shows activism against UK companies. Based on the share-price performance of 245 companies targeted by active campaigns between January 1, 2017 and February 28, 2020, UK firms outperformed the S&P 500 index by 3.6% in the 24 months after the campaign began. This compared with a 2.7% outperformance of US-listed companies.
This story has been published without modification to the text from a wire agency feed
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