The female activist hedge fund duo shaking up European M&A
by Ron Orol
The hedge fund industry - like many sectors - is dominated by men. And while a few women work for activist managers here and there it is extremely uncommon, almost unheard of, for activist funds to be founded and operated by women - especially in continental Europe.
Enter Anne Sophie D'Andlau, 43, and her partner, Catherine Berjal, 47 (both pictured with D'Andlau on the left), co-founders of Charity Investment Asset Management, or CIAM. A Paris-based, five-year-old event-driven fund, CIAM adjusted its strategy three years ago to include deal-related activism.
“We think a shift towards activism is a natural evolution from event-driven investment,” D'Andlau said in an interview with The Deal. “What we found was that when it came to all these M&A events and undervalued corporations, there was an opportunity to be more active to push for a catalyst impact on the share price.”
The activist fund, which donates 25% of its performance fees to childhood-focused charities, made a name for itself in the French and U.K. press as a result of its campaign against Club Méditeranée SA (Club Med) in 2013 - 2015. There, CIAM and an investor group filed a lawsuit challenging an offer for the French holiday operator that ultimately allowed a counter-bidder to enter the process. The result was a €939 million ($1.1 billion) acquisition by China’s Fosun International Ltd. at a significant premium to the original offer. “Our blocking of the offer and outpouring of concerns from other investors allowed a counter-bidder to enter the battle and ended up in a 45% premium,” D'Andlau said.
Today, the insurgent managers are locked in a heated battle at SFR Group, a French telecom operator that is majority owned by Luxembourg-based telecom and media company Altice SA, a company controlled by billionaire Patrick Drahi. Altice announced earlier this month that it was seeking to buy out SFR’s minority shareholders, which control a 22% stake, with an all-share offer that represented only a 2.6% premium to the closing price on Sept. 2 the day before the offer.
Upon the announcement of the offer CIAM jumped into action. The fund’s stake in SFR, D'Andlau says is a “core position for the fund’s portfolio,” and wrote a publicly-disclosed letter to the French regulator, Autorité des Marchés Financiers, or AMF, contesting a fairness opinion on the offer, in particular, some of the valuation methods employed by an outside accounting firm, Accuracy, hired by SFR.
“We track these types of inefficiencies,” she said. “This is our role - to intervene.”
Specifically, D'Andlau contends that Accuracy employed a discounted cash flow valuation method for the all-stock deal that took into consideration the worst valuation for SFR and the best valuation for Altice, leading to a very depressed exchange ratio. “They excluded comparable valuation methods, such as considering similar deals in the sector,” D'Andlau said. “It was skewed to the worst ratio possible and even Accuracy said they picked the low end of the range.”
In addition, CIAM argued that two of the three directors at SFR overseeing the fairness opinion aren’t independent and have close relationships with major French and international banks, including ones that have historical business relationships with Altice.
Responding to CIAM’s letter, the regulator, AMF, on Wednesday blocked Altice’s offer for the 22% of SFR it didn’t own, noting only so far that the offer did not conform to market regulations. So far it is unclear what exactly that means but it could be related to price of the offer. Altice could challenge the AMF intervention or hike its offer to one that CIAM and other investors accept. “This is clearly a victory for us,” D'Andlau said. “If we had not intervened, we think there is a high probability the outcome would have been different.”
CIAM’s campaign at SFR comes as activism is on the march in Europe. According to Activist Insight, there were 40 targets headquartered in continental Europe in the first half of 2016, up from only 9 in 2010. Altogether there were 64 companies in the U.K. and Europe targeted in the first half of 2016 – that number is already almost as many as the 67 targets in all of 2015 and up from 51 in 2014. The U.K. has consistently remained the country in Europe faced with the most activism over the past six years, it remains far behind the U.S. in terms of activist encounters. Activist Insight notes that there were 26 U.K. targets in 2015 while only six in France, two in Germany and six in Italy.
With so few cases of activism in France and southern Europe, D'Andlau says she sees an opportunity. “In terms of trends is we haven’t seen a lot of money allocated to the European activist space as of yet,” she said. “Most of the actions in Europe have been done by non-European activist firms.”
However, CIAM’s strategy for activism differs significantly from the U.S. approach, where funds routinely launch proxy contests to install dissident directors onto corporate boards as part of their share-price improvement efforts and M&A-driven pressure tactics. In Europe, D'Andlau notes that it is quite rare for an activist to launch a proxy contest, arguing that it is usually costly and doesn’t achieve the share-price improvement the insurgent is seeking. Taking a campaign public, she notes, puts enough pressure on dealmakers and corporate executives to respond.
“Our stick is to go public with our campaigns. They don’t want us to go to the press,” she said.
D'Andlau sees an evolution around how the European corporate and investment world perceives of activism - transitioning “from a very bad reputation” a few years ago. “We have seen quite a shift in the perception from institutional investors across the whole of Europe,” she said. “Some institutional investors like what we’re doing, that we’re doing the job as they don’t want to be seen doing the job. Some of them are invested with us.”
D'Andlau says she and Berjal see CIAM as the emergence of a small counterweight to Europe’s “very clubby” corporate environment. And for D'Andlau and Berjal, that environment is a male-dominated one.
There is at least one benefit to being a female duo in the activism sector. “It is difficult to be a woman in this environment. Europe is an old fashioned continent and the money is run by men,” she said. “But there is one positive aspect of being women in this environment and that is people remember us.”
And considering that clubby world, D'Andlau believes activist funds will increasingly put a spotlight on corporate governance failures in Europe, an area she believes needs dramatic improvement. For example, D'Andlau believes that boards should have independent chairmen and independent directors.
“It is really the beginning of a focus on governance. It is going to take time. It’s the beginning of a trend that will become important,” she said. “We believe an independent chairman and some independent directors are critical to the proper functioning of a company. The reality is they all come from the same schools, they all know each other for many years and have no real independe
nce and won’t provide independent oversight of the top executives.”
For now, the question is whether the credibility CIAM has built up in France after its high-profile Club Med campaign success will help in the months to come with the fund’s efforts at SFR and beyond. “We think Altice wants to close the deal as soon as possible so it can focus on new developments for the group,” she said.