In recent months, The Netherlands has faced several high-profile shareholder activism and hostile takeover cases. And despite efforts to put new protective laws in place, it is entirely likely more businesses will become a target in the near future.
What does this mean for communications professionals and the C-suite? What business should do is not let down their guard and slip into a false sense of security, but instead make sure they are prepared for more and tougher battles with activist investors and hostile buyers – especially in the short term.
While some seem to be convinced legislation to prevent forced sales of Dutch corporate assets will have a large impact and stem the drive for international investors and acquirers to target corporations in the Netherlands, this remains to be seen. Companies coming under attack usually represent unique assets and value cases. Opportunistic investors are likely to just roll the dice and see where things net out – especially since their action alone usually leads to a neat share price gain. So, ultimately, for the shareholder activist, what is the risk?
The other reason why increased activism is likely, especially in the short term, is precisely the fact that such legislation may be put in place. Activists or hostile buyers will want to move before this happens.
While it’s hard to prevent becoming a target altogether, ensuring you are well prepared to help your business stay its course is entirely possible. It takes time and a solid, thorough approach to line up your defence effectively.
Common demands made by activists include breaking up a company, selling all or part of it and returning cash to shareholders, or acquiring board seat to influence the company’s strategy. An activist investor often owns just a small stake in a company, which it uses as a license to speak. They use thorough analysis to support their case and the campaign is carefully planned well in advance. Management can either resist or risk a public battle over who is wrong or right.
Once the debate goes public, the activist rallies other investors to increase pressure on management. They will stop at nothing to get as many investors to support them and not management, and this can be extremely painful for the corporation and its people.
An argument commonly used to dismiss demands made by corporate raiders is portraying them as money-grubbers only after a short-term gain. True or false, it’s a useless case to make. Sure; unions, politicians and the general public might go for it, but other shareholders (who in fact own the company) are less likely to be receptive of such arguments. The real debate is who can do a better job managing the assets or deploying available capital. By comparing a company’s value or performance relative to similar businesses, an activist will argue that current management is doing a lousy job or that assets are worth more as separate businesses. Talks with management often start in private, accompanied by threats of a public pillorying if the company doesn’t meet the activists’ demands.
STAY THE COURSE
What ensues can often be an emotionally charged, combative process led by ad hoc decisions that are prone to be uninformed and mistaken. A rational, well-planned and prepared approach is better and will lead to a more valuable outcome for the company and its management. It will also cost less time, focus and energy from the side of management – which can be used to manage the company and do everything possible to create more value for all stakeholders.
To prevent companies from slipping into this downward, draining spiral, preparation and effective, integrated communications are key. Make sure the way your strategy and vision are articulated and communicated in a way that represents value creation for all stakeholders, including, importantly, shareholders. A stakeholder engagement review can help you get a clear picture of your current state. If done well, this will limit the chance an activist takes you on, and you will be building support in the market and wider society.
A carefully built and thoroughly thought through step-by-step response plan should be built in collaboration with all critical corporate functions and corporate management to make sure your company is ready for when things do get heated. This will help you deal with the situation rationally, effectively and in a pre-aligned fashion, and will ultimately limit the chance you will have to resort to panicky asset sales, unattainable financial targets and legal battles to stay the course your company has charted out.