Shareholder activismWednesday, November 24, 2021
BY DAVID ROSE
Activist investing is a common theme throughout North America with Engine No 1, a small hedge fund, successfully getting three of its four director nominees onto the board of Exxon Mobile in June as part of its push to get the oil giant to focus more on a clean energy strategy and climate change.
Though it's less known in the Caribbean, there are still cases where funds, people, or a collective group of shareholders come together to effect a change in a company.
One of the most prominent cases in recent history of activist investing is William “Bill” Ackman's use of Pershing Square to oust the CEO and board of Canadian Pacific Railway (CP) in April 2012 and making the company a much more successful business. Ackman started purchasing shares from September 2011 and became the largest shareholder in the company by December with a 14.2 per cent stake. After presenting his case of how CP was underperforming relative to other Class I North American railways, the board stepped down before the annual meeting, which allowed Ackman to have his nominees elected.
Ackman sold his stake in CP in August 2016, netting Pershing Square a profit to the tune of US$2.6 billion. Over the five-year timeline, CP had a compounded annualised total shareholder return of 45.39 per cent which was well ahead of the sector specific indices.
Other well-known activist investors include Carl Icahn, David Einhorn, and Dan Loeb.
The most recent case of shareholder activism in the Caribbean came in January 2018 with NCB Financial Group Limited's (NCBFG) attempt to acquire a controlling interest in Trinidad-based Guardian Holdings Limited (GHL). NCBFG had acquired 29.99 per cent of GHL in May 2016 for US$3.24 per share. It made another offer in December 2017 to acquire up to 62 per cent of GHL for US$2.35 or TT$15.60 per share. This was US$0.89 less than what they paid a year before.
Feeling dissatisfied with the offer presented, Peter Permell and several other shareholders went to the Trinidad and Tobago Securities and Exchange Commission in January 2018 to complain about the offering circular presented by NCBFG and for other details surrounding the initial acquisition by the largest shareholders. Shareholders rejected the initial offer and subsequent offer of US$2.65 in November 2018, especially because many shareholders didn't have US-dollar bank accounts along with the fact that the price being offered was still relatively below the market price.
After GHL was fined TT$300,000 ($6.83 million) in November 2018, NCBFG presented a new offer of US$2.79 per share, which was around TT$18.52 in December 2018. Though shareholders were content with this offer, the acquisition wasn't complete until May 2019 after waiting on licences from the Trinidadian regulators.
Because of the shareholders' adamant stance for a better offer, NCBFG spent an additional US$32.66 million on the acquisition which was delayed by a year. NCBFG acquired 74,230,750 shares which brought its ownership in GHL to 61.96 per cent.
Mayberry Investments Limited (MIL), through Mayberry Jamaican Equities Limited (MJE), has been one of the most prominent shareholder activists in the market. MJE owns top 10 stakes in most of the Junior Market and other companies as well. MIL was the most vocal firm for Berger Paints Jamaica Limited (BRG) shareholders to reject the takeover offer by Ansa Coating International Limited in September 2017.
Despite offering $10.88 or US$0.08485 per share, MIL projected BRG should be trading around $15 and that the offer was below the actual market price as well. After the offer closed, Ansa was only able to purchase 6,691,142 additional shares or 3.12 per cent more. MIL current CEO Gary Peart is the executive chairman of Supreme Ventures Limited which they became more actively involved in October 2017 as they sought a different direction for the business.
Some companies like Access Financial Services Limited have a provision in their articles of incorporation which lets shareholders who own at least 20 per cent of the company elect a shareholder director to the board. As a result, Christopher Williams was reappointed in 2020 because of Proven Investments Limited while Neville James was reappointed in 2021 because of Springhill Holdings Limited.
Kingston Wharves Limited's (KW) articles have a provision which allows a shareholder owning at least 21 per cent of the issued shares to appoint up to three directors to the board, who are called specially appointed directors. Due to this article, Jamaica Producers Group Limited and Seaboard LLC have these directors on KW's board. Through these specially appointed representatives, activist investors can always help to guide the company's future in what they believe is best to generate substantial returns.