Falling share prices set to fuel activism
A wave of shareholder activism is expected to hit companies in the coming months as falling share prices galvanise shareholders into action.
Tim Stocks, a leading city lawyer at law firm Taylor Wessing, told City PM he was already instructing on several activist shareholder cases and expected the numbers to increase rapidly.
Stocks, who said he had noticed an increase in activist clients seeking representation since March, said that the activism was across all sectors and companies of all sizes from Aim listed to FTSE 100.
“Falling share prices are driving the majority of these actions. Frustrated with seeing the value of their investments plunge, activist shareholders, both individual and institutional, are increasingly seeking balance sheet restructurings including the return of cash,” he said.
Stocks said that at least part of the activism was driven by shareholders seeking a cash buyback in order to take advantage of further buying opportunities with many companies shares at record lows.
He also said that lower share prices were aiding shareholders in building up strong bargaining position stakes enabling them to lobby for change.
But he said the 2006 Companies Act was the main change that had strengthened activist shareholders’ rights. “It lays out directors’ duties much more clearly and eradicates grey areas, meaning activists can table motions with confidence. Shareholders basically can measure directors’ actions against a checklist,” he said.
He cited mobile phone company Vodafone, which at its last AGM faced pressure from Efficient Capital Structures to demerge its 45 per cent stake in Verizon Wireless, as a good example of shareholder activism. Stocks points out that in spite of its 0.1 per cent stake it successfully created a dialogue.
“Even though the motion was voted down it created a discussion and is a good example of how activism can help influence the strategies of even the largest companies,” he said.