Germany is too clubby
Portfolio manager magazin
by Mark Böschen
ACTIVIST Hedge fund co-founder Anne-Sophie d’Andlau tangled with Disney and China´s Fosun. Now she wants to take German companies to task.
Ms. D’Andlau, is it true that British investor Chris Hohn is a major role model for you?
We donate 25 per cent of our management fees to charitable organisations for kids. My co-founder Catherine Berjal and I say quite openly that it was Chris Hohn, with The Childrens’ Investment Fund (TCI), who inspired us to do this.
Then it must also inspire you that Deutsche Börse is once again attempting a merger with the London Stock Exchange (LSE), which Hohn helped to block the last time. Will you be actively involved this time as a deal breaker?
We’re taking a very close look at it. We like this deal better than the one ten years ago. But at the present time, there remains a disparity between the price being offered by Deutsche Börse for the LSE and the price expected by the market. We therefore believe that U.S. rival ICE or another exchange operator could potentially put in a bid for the LSE.
It sounds like a good deal for LSE shareholders that could be even better. What exactly is the incentive for activists like you?
At the current offering price, both sides profit. But if ICE comes with a counteroffer – and the market is expecting a premium of 12 to 13 per cent – and Deutsche Börse in turn raises its offer by 15 per cent, that would, in our view, be already too much.
Then you would fight against the deal?
We would need to see.
You are already battling for Disney to pay its minority interest holders more than the EUR 1.25 per share which it has offered for separately exchange-listed Euro Disney, and you have filed suit in several courts. What are the prospects for this?
They’ve really tried to pull a fast one on Euro Disney minority shareholders. A property appraiser commissioned by us has put a value of EUR 2.40 per share on its real estate holdings alone. Furthermore, inflated licensing fees have been used to systematically drain capital from Euro Disney. We are now demanding part of this back. In total, we put the value per share at EUR 3.70.
Disney’s appraisals put the fair value at EUR 1.25.
We have strong arguments on our side. That’s why we’re supported by Guy Wiser-Pratte...
...the U.S. activist, who some years back took a stake in German robot producer Kuka and in the case of Rheinmetall...
... as well as fund group Financiere de l’Echiquier, with around EUR 8 billion in assets under management, and a large investor from London. All of us share in the legal costs, but we are the only ones who are out in front.
Is a lawsuit enough when one is demanding that the offer be tripled?
That’s why we have been overall in the media, even in the Wall Street Journal. Nice Micky Mouse could soon be seen as evil Micky Mouse – and we don’t think that Disney wants to see that happen. The corporation has done things in France that it would never dare to do back at home, as if France were some kind of banana republic.
This is the way that some U.S. hedge funds also see Germany since the time that they
lost billions betting on Volkswagen’s takeover by Porsche, yet neither supervisory authorities nor courts found any irregularities.
The perception which hedge fund managers have of Germany is similar to that of France: Both countries are moving in the wrong direction. It’s for this reason that the major investment funds and pension funds recognise that they need a countervailing power if they want to achieve their return objectives. A counterweight to the well organised way in which the establishment has been doing business for many years. Don’t understand me wrong, we’re happy to have dinner with these guys. But business is business, and we have to defend our investors.
Even in Germany?
We haven’t yet opened discussions with any German companies. But we want to. That’s why we’re here and why we’re talking with you. We see many similarities between the German and French markets: Both are “clubby”, where the establishment is very powerful and where they like to cut deals among themselves, sometimes to the detriment of minority shareholders.
If it’s really so bad, perhaps you’d do better to keep a safe distance from Germany.
We’re interested in Germany because we have faith in the courts. As our next step, we will be meeting with other asset managers. The success of Europe’s shareholder activists will depend upon whether they are able to win the major investors over to their side. Our goal is to gather the Fidelitys of the world around us, the big international investors who own two third of the DAX. Then we will be on the front lines fighting for them.
Two major fund providers in Germany, Union Investment and Allianz Global Investors, have built their own teams to speak with supervisory boards and to voice criticism at general shareholder meetings. Do they need you at all?
General shareholder meetings are a good forum for us to keep up the pressure. They are a way for us to ensure that management knows that we are here and that we’re not going away. The more funds that think like we do, the better.
Do you always have direct discussions with the company’s executive board beforehand?
Sometimes we know in advance that this will be useless. In that case, we skip over this step. Normally, the first step that all of us take is to speak with management and to listen to what they have to say. In the case of an official takeover offer, however, this costs valuable time.
Aside from Euro Disney, where else are you currently invested?
At French aerospace supplier Zodiac, for example. After eight profit warnings, this company has finally realised that it would do better to sell itself to a larger company. Aviation has been growing so robustly that Zodiac has been unable to fill customer orders quickly enough, so the company needs a parent with sufficiently deep pockets. A larger supplier would likewise be better from the standpoint of Boeing and Airbus. Over the past year, shares of Zodiac have plummeted by one half. It’s a great opportunity for an acquirer.
Your colleagues at Cevian want to split up ABB. Is this a good idea?
Yes! Normally, Cevian works behind the scenes. They’ve been very patient. Now they’re publicly taking a harder line.
Should the example of ABB also be giving Siemens boss Josef Kaeser pause for thought?
Absolutely. But we currently have our sights more on smaller companies. The ideal size for us is between EUR 1 billion and EUR 5 billion in market value.
On average, hedge funds with their event-driven investment approaches lost five per cent in 2015 – and star funds Greenlight Capital managed by David Einhorn and Pershing Square managed by Bill Ackman even more than 20 per cent. How was the year for you?
We ended the year with a gain of 10 per cent, following 15 per cent in the prior year. This has been helping us to gather new capital.