Activist Spotlight: A Closer Look at CIAM's Scor Campaign
by Ronald Orol
Anne-Sophie D'Andlau, managing partner at Charity Investment Asset Management, or CIAM, a Paris-based, five-year-old sometimes activist fund, is keeping a close eye on April 9, 2019.
That's when French reinsurer Scor SE's three-year standstill agreement with the Paris-based privately held insurance company, Covéa, expires.
The date is significant, considering that Covéa in August launched a hostile $9.6 billion bid to buy Scor. Scor rejected the since-withdrawn unsolicited offer, but Covéa has said it is still interested in purchasing the company.
The standstill deal prohibits Covéa from owning more than 10% of Scor unless there is a strategic change -- and it was signed in 2016 when Covéa acquired an 8.22% stake in Scor. After April 9, Covéa could accumulate more shares in Scor. In an interview with The Deal, CIAM's Anne-Sophie D'Andlau notes that with more shares Covéa would be a better strategic position to acquire the company outright.
CIAM, which acquired a 0.77% stake, launched a campaign in September with a letter to Scor's board threatening legal action against chairman and CEO Denis Kessler if he can't justify the decision to reject consideration of Covéa's bid. "We are making sure they are doing their fiduciary duty to review any offer that is on the table," D'Andlau said. "They have an investment bank adviser, but they didn't meet even briefly with bankers of the other side."
D'Andlau insists that Scor is an undervalued business with poor corporate governance and no succession plan for Kessler. Those characteristics, together with the hostile bid rejection, fit into CIAM's activist, and event-driven M&A investing strategy. The sometimes insurgent fund has a five-year track record of 11.5% annualized returns.
The fund and company disagree over corporate governance. D'Andlau contends that only three of thirteen directors on Scor's board are independent, though Scor refutes the assertion. A Scor spokesperson noted that 70% of the company's directors are independent under Afep-Medef rules, the corporate governance code of reference for publicly traded companies in France.
"The composition of the board is not independent enough, and there is also a concentration of power in Denis Kessler's hands," D'Andlau said.
Kessler and CIAM have also sparred over assertions that Scor's executive committee had threatened to resign if the bid was accepted. Last month, CIAM said the threat amounted to "unacceptable pressure on Scor's Board ... and a sign that Scor's management seems to be more driven by the desire to preserve their personal interests." In an interview with The Deal, D'Andlau argued that the Scor board would receive an approximate $40 million severance package if they were to resign, essentially a poison pill on Covea's offer considering that Covea is seeking to keep Scor's management intact if it can complete its acquisition offer.
Kessler later described the accusation as "founded on inauthentic information," and labeled it defamatory. However, D'Andlau suggested that Kessler's comment raised questions.
"You either deny it or say it is true," she said.
Later, Scor's reference director ultimately told CIAM that there was no letter suggesting that Scor's management team had threatened to resign in that scenario, a comment that Scor has since confirmed.
For now, Scor continues to contend that a Covéa -Scor combination is "fundamentally incompatible" with the reinsurer's strategy of independence, which it insists is a key factor in its development. The company noted in September that the bid would "jeopardize" its value-creating strategy.
Citing conflicts, Covéa chairman Thierry Derez on Sept. 28, said he was temporarily withdrawing from Scor's board, until the company's 2019 annual meeting. The withdrawal suggests that Derez may not return, as Covéa continues to pursue its acquisition effort.
A key consideration, Covéa had acquired its stake from Sompo Japan Nipponkoa Insurance, which had sought to acquire a 17.5% stake but couldn't. D'Andlau suggested that Kessler had urged Sompo not to sell its stake to Covéa, but it did anyway.
It is possible that Covéa could wait until its standstill with Scor expires so it can accumulate more shares and potentially hike its bid, which could put additional pressure on Kessler and Scor's board to consider the offer more thoroughly.