An empty Avenue des Champs-Élysées in Paris due to the Coronavirus lockdown imposed in France.
As the novel coronavirus runs rampant and the majority of the world’s population is in lockdown, times have never been harder for the business world.
Recently-released Q1 figures for the eurozone are even grimmer than predicted—one by one, European economies are falling into a recession that’s shaping up to be worse than the last financial crisis. France posted its steepest contraction since the Second World War, while Belgium’s GDP is plummeting at twice the rate it did when the 2008 financial crisis hit. Italy, meanwhile, saw its credit rating cut to a single notch above junk as Q1 data indicates its economy is now weaker than it was at any point during the eurozone crisis.
The outlook is dire for individual companies, as well. 84% of German firms reported declines in sales thanks to the epidemic, and less than half of them expect to recoup those losses any time soon. Business and consumer confidence across the European bloc are approaching all-time lows, and while a general atmosphere of solidarity and government aid programmes have kept many firms afloat for now, the months to come are sure to be lean.
Amidst the financial chaos, one particular category of firms smells blood in the water. Activist investors are circling like vultures, waging crusades for everything from extraordinary dividends to leadership change in the firms they’ve built up stakes in. Activist funds have always been a controversial actor in the business world. The optics of them waging aggressive campaigns against companies—including some supplying hospitals—in the middle of the worst economic downturn in the history of the European Union, however, are particularly damaging.
Many activist funds, wary of the reputational risk inherent in pushing their agenda during a global health crisis, have put their campaigns on hold in light of the exceptional circumstances. In January and February, a surge in activity suggested that activist investors were on track for a record-breaking year. March, however, saw new activist campaigns hit a multi-year low as funds feared being perceived as “opportunistic and self-serving”.
Despite the general downturn, some activist funds seem more zealous than ever. Cayman Islands-registered activist firm ENA Investment Capital, which claims to have quietly built up voting shares worth 14.9% in Belgian personal hygiene products manufacturer Ontex, is now turning up the heat. Notwithstanding encouraging reports about the group’s financial outlook and the fact that Ontex is a major supplier of currently hard-hit hospitals and care homes, ENA is banging its fist and demanding that Ontex do more to create “shareholder value”. Belgian media has even suggested that ENA could agitate for the ouster of Ontex CEO Charles Bouaziz, despite the firm’s solid handling of the Corona crisis.
Meanwhile, British activist firm Amber Capital is going one step further and pushing for the entire supervisory board of French multimedia group Lagardere—which owns the famed Hachette publishing house—to be given the axe and be replaced by a list of figures drawn up by the hedge fund. Amber’s strategic gambit adds to the huge pressure the conglomerate it owns a 16.4% stake in is already facing. With its travel retail segment taking a particular hit amidst the coronavirus crisis, Lagardere reported a 12.5% fall in first-quarter revenue on April 30—and has already announced pay cuts and a suspended dividend to shore up its finances.
Perhaps no activist outfit is keener to push its agenda regardless of the circumstances than Charity Investment Asset Management (CIAM). The French fund, known for its “ruthless” nature, has sparked some of Europe’s most bitter corporate battles over the past couple of years and is pressing full steam ahead despite the coronavirus crisis.
As the telecoms industry is facing a 3.4% contraction despite the fact that the pandemic has highlighted how critical the sector is, CIAM is demanding that Telenet, one of Belgium’s three largest telcos in which the activist fund holds a 1.2% stake, pay out a nearly €1 billion special dividend.
At the same time, CIAM is continuing its year-long battle with French reinsurer SCOR, in which it holds roughly 1% equity. The activist firm succeeded in getting SCOR to push the date of its annual general meeting from April 17th to June 30th, but shows no sign of letting up pressure on Denis Kessler, SCOR’s CEO and chairman for the past 19 years, despite the rocky state of the French economy after six weeks of lockdown. CIAM insists it’s trying to address serious corporate governance issues; the reinsurer has retorted that CIAM’s investment is “speculative and short term” and that it’s merely seeking to destabilise the company.
It’s not surprising, given how these hostile campaigns pose a fresh challenge to firms already navigating choppy seas, that European regulators are starting to push back. In late April, France’s Autorité des Marchés Financiers (AMF) levelled a €20 million penalty—one of the biggest fines in the regulator’s history—against US hedge fund Elliott Management, which has previously been fined for insider trading. According to the AMF, Elliott failed to adequately disclose the size and nature of its stake in French logistics firm Norbert Dentressangle, and furthermore impeded the AMF’s investigation into its investment.
In a report published on April 28th, the AMF signalled that it’s ready to go still further in curbing increasingly excessive shareholder activism and short selling. The French regulator is amending its policies to allow companies to address activist attacks during the “quiet periods” before results are published, and is trying to streamline its procedures for investigating problematic activist investments. As a select group of activist funds neglect to call a coronavirus truce and pile pressure on firms amidst a deepening recession, other European regulators are sure to follow in ratcheting up their oversight.