VICTORIA GEDDES, Executive Director
Over the past two years, as COVID has rampaged around the world, an unexpected bonus for company boards has been the virtual exit, stage right, of activist shareholders. I’m not talking about the type of activism associated with ESG issues that we are increasingly seeing around the time of AGMs, but the more disruptive change of control brand of activism. It would be fair to say that this almost completely disappeared during 2020 and 2021 and we posed the question in our November 2021 blog ‘The Decline in Traditional Shareholder Activism’, whether it may have died out altogether. But in April we detected signs of a pulse….
So, are we seeing a change in 2022?
The number of companies receiving notices to requisition a meeting to change the board more than doubled in the first five months to 12 from 5 for the same period in 2021 and 9 in 2020. Activists won at two of the meetings and five of the requisitions were withdrawn, mostly as a result of the activists achieving the outcome they were seeking before the meeting. One of the successful campaigns was mounted by veteran activist, Gary Weiss, at Ariadne who sought to replace one of Shriro’s two independent directors with his own nominee despite only owning 5% of the company.
SelfWealth was one of the companies to successfully defend their position. SelfWealth is the fourth largest online trading platform in Australia with a strategy to compete with, and take market share from, the major banks. In this case the former CEO, backed by a group of shareholders, campaigned to replace two of the four directors with their own nominees – a move widely seen as an attempt by the former founder and CEO to take back control of the business he left in 2019.
Both these campaigns are very typical of how activism operates in Australia where the focus is almost exclusively about changes to the board with s.249 of the Corporations Act weaponised by aggrieved shareholders or directors to change the composition of the board to deliver their preferred outcome for the Company’s direction. It has been this way for at least a decade with Australian companies subject to an average 67 activist campaigns a year up to 2019, placing Australia as number two in the world behind the US.
The impact of COVID on activism in Australia
In 2021 only 14 companies were targeted, three of them on two occasions. Our analysis of requisition notices lodged by activists revealed a 50% fall compared with 2020. More significantly activists were successful in two thirds of campaigns, either by winning support from shareholders at the Meeting or achieving their outcomes prior to the meeting. In 2020 the success rate was split roughly 50:50 with 18 companies being targeted but half of those were requisitioned anywhere between two and four times during the year.
For the most part such campaigns fly below the radar as 75% take place in the nano and microcap end of the market. Typically, they are also companies in the energy and basic materials sector which accounted for nearly half of all activity from 2016-2019, falling to around 40% in the past 2 years.
So far in 2022, this profile remains unchanged with nano/microcap exploration companies accounting for half of the targets and a mix of sectors with companies whose market caps range from $8 -82m accounting for the rest. Nevertheless, the fact that we have already had 12 companies targeted in the first 5 months of 2022 suggests something might be shifting.
Trends in Activism Globally1
Globally the geographic focus of activism is changing. Despite consistently being ranked second in the world on activism for over a decade, Australia’s decline in activism over the past two years is similar to that experienced in the US, Canada and to some extent the UK. Going against the trend are the Asian countries, Japan and South Korea, which have experienced strong increases in activism in 2022. For the first time, it looks like Australia’s position behind the US is being overtaken by Japan and Korea who currently rank second and third with Australia a distant fifth.
So while there are signs that activity levels might be increasing in Australia, our Asian neighbours are in no doubt that the pressure from activist shareholders is starting to intensify.