Hedge fund activism in Europe: does privacy matter?

Abstract

Shareholder activism in Europe is sometimes difficult to observe. There are few shareholder proposals put forward at annual meetings on the Continent and even fewer in the United Kingdom. Activism by hedge funds is relatively more frequent but data is only available on the most public cases. This does not imply that shareholder activism in Europe is non-existent; on the contrary. The lack of shareholder proposals could be the result of real shareholder power that only needs to surface occasionally. We analyze this proposition in a non-random sample of 131 European interventions from five activist funds which have provided the authors with proprietary information. Of these 131 interventions, 57 were not made public either during or subsequent to the intervention. Investigating private activism is important because, when it is combined with public activism, it provides a better measure of the overall level of activity. It also allows us to examine the issue of whether private engagements are more profitable than public and hostile engagements, rather like the comparison with hostile versus agreed takeovers (although not all public engagements are hostile and not all private ones are friendly). Our findings indicate that shareholder activists in Europe are more influential than the public numbers might suggest. Also, private engagement outcomes are more profitable when there is chairman turnover and non-takeover restructuring (spin-offs, equity carve-outs). Private activism appears to be particularly significant when engaging with blockholder controlled companies.