Shareholder say, shareholder sway

The M&A toolbox for shareholders

Pressuring companies to generate value, streamline operations and/or align with ESG factors by disposing of non-core business units via spin-offs and carve-outs or changing listing venue.

• In the UK, Reckitt announced that it will pursue strategic options for its home care brands and nutrition businesses following public pressure from Causeway, Flossbach and Bluebell to sell or separate these businesses.
• France also saw an increased number of spin-offs in 2024, with the likes of Vivendi seeking to split into four listed entities to reduce conglomerate discount impacting its stock.

Playing an active role in proposed takeover transactions by leveraging a bidder's need for irrevocable undertakings to push for better deal terms, negotiating stub equity alternatives to retain their exposure to the business, or even seeking to challenge value or vote deals down.

• On improving deal terms, there have been a number of examples in the UK of price bumps on takeovers alongside shareholders giving irrevocable undertakings – for example, Aberforth Partners provided a soft irrevocable to CMA CGM on its bid for Wincanton alongside a price bump from CMA CGM, before switching to back GXO's higher competing offer when it emerged.
• On contested deals, in Japan, multiple shareholders including Curi RMB Capital opposed Taisho Pharma's $5 billion management buyout which completed in January 2024, by refusing to participate in the tender offer and then seeking through the courts to block the forced divestiture of their stakes unless a higher value was imposed.

Creating their own M&A solutions, by forming bidding consortia to take public companies private, providing financing to support interested parties, or seeking to directly acquire assets from companies.

• A notable example in Australia in 2024 was the A$2.1 billion acquisition of Adbri, where existing major shareholder Barro Group initiated a joint bid for the company with CRH plc, with CRH buying out the other shareholders under a scheme of arrangement to take the company private.
• In France, four public to private transactions were initiated by investment funds in the first half of 2024, either as majority shareholders (on the bids for Believe and Osmozis) or as minority shareholders (on the bids for Boiron and SII). 

Bumpitrage, which is where activist investors purchase shares subject to a takeover and then rally other shareholders around the idea that the current bid is insufficient and ought to be renegotiated in order to increase the offer price.

• In Japan, J-STAR's offer for Yaizu was blocked when Murakami and 3D Investment each acquired around 10% of Yaizu after the J-STAR offer was announced. Yaizu subsequently engaged with both Murakami and 3D Investment to select a new bidder (Inaba Foods) who eventually made an offer with shareholder support which was 20% higher than J-STAR's initial bid.

Bidders appealing directly to target shareholders

We are also seeing bidders approaching shareholders for support when they fail to get engagement from a target board on a potential bid – recognising that obtaining this support could open up the doors to a board recommendation.

For example, in the UK, Aviva reportedly contacted Direct Line shareholders to drum up support for a possible offer at £2.50 per share which had been rejected by the board. Subsequently, Aviva and Direct Line jointly announced a recommended cash and share offer worth £2.75 per share. Similarly, Volex voluntarily announced its approach for TT Electronics after rejection from the board, publishing an investor presentation and urging shareholders to encourage the board to engage with them.

In Australia, Zhaojin Capital went hostile to win control of Tietto Minerals in a six-month takeover battle which involved price increases and acceptances by shareholders taking Zhaojin into an effective control position before the Tietto board recommended the deal.

This "leapfrogging" trend is partly borne out of continuing gaps in valuation expectations between target boards and bidders: many target boards are taking the view that stocks in certain markets and/or sectors continue to underperform and are factoring this into their premia expectations, while bidders may be looking to take advantage of that underperformance in their pricing.

Highly motivated bidders, who are failing to gain traction with a board, may therefore decide to put a rejected proposal directly to shareholders (either publicly or privately, operating within applicable rules) with a view to creating pressure on the board to engage. This type of action can, of course, be perceived as hostile and its success is dependent on the bidder’s ability to gain traction with shareholders. Interestingly, this increase in hostility has not led to an increase in truly hostile offers, reflecting a continuing need for access to diligence or, perhaps, a desire on the part of bidders to avoid the level of premium required to secure control on a hostile bid.

Outlook for 2025

While challenging market dynamics continue and shareholder expectations grow, it is essential for boards to continue to adopt a proactive and effective strategy towards shareholder engagement, explaining positions and facing any concerns head on. This is particularly relevant to public M&A transactions, where shareholder consensus is essential to securing a successful deal. It will be interesting to see whether, in the face of continuing valuation gaps, there will be a rise in hostile takeovers this year, or at least an increase in 'bear hugs' with bidders taking offers straight to shareholders.