Is the Stock Spirits activist investor rebellion an omen of things to come?

 
Nick Dawson
Paris Demonstration
Western Gate Private Investments launched a lengthy campaign against the board of Stock Spirits (Source: Getty)

The shareholder showdown that has broken out between Stock Spirits and family office Western Gate Private Investments in the last two months may seem unusual from the outside.


Western Gate Private Investments, led by Portuguese tycoon Luis Amaral, is an almost 10 per cent shareholder in the European drinks company.

It successfully overrode the board to appoint two non-executive directors yesterday, after an all-out war of words broke out between the companies in recent weeks after Amaral and other investors criticised the company's management and M&A strategy.

Highly public activist campaigns are a rarity in the UK and apart from a few big votes – Alliance Trust, Electra and Rangers Football Club, for example - those that do spring up tend to be at smaller companies.

Read more: War of words breaks out between Stock Spirits and shareholder rebel


But is the Stock Spirits saga an omen of things to come?

Not for a lack of activists

The rarity of shareholders campaigns in the UK may not be for a lack of activists. Many activist situations are settled privately to avoid expensive campaigns and reputational damage – witness the lengthy negotiations between Rolls-Royce and US hedge fund ValueAct over a board seat the latter eventually claimed in March.

Activism is not as common in the UK as in North America, where 262 companies have already been targeted this year, according to Activist Insight.

Yet it is growing quickly: The number of UK and Channel Islands companies targeted in 2016 has increased by 46 per cent compared to the same period last year, whereas for North America the increase was just eight per cent.

It is therefore no surprise that most investment banks in the US routinely offer activist scenario planning exercises for their corporate clients, aiming to pre-empt the issues that each company may be vulnerable on and create a defence plan should an activist make contact.

Read more: Investors win as activism invades the boardroom

In recent years, UK banks have been offering similar services.

The fact that activism is on the rise in the UK is therefore not in doubt. The question is whether the majority will continue to be settled behind closed doors or fought on the battlefield of a proxy contest.

Determination of boards and the willingness of shareholders

The answer relies on two key factors - the determination of boards and the willingness of other shareholders to support the activists.

Firstly, UK boards tend to enjoy greater independence than their US counterparts, which often combine the chief executive and chairman roles and are more inclined to dig in.

It may also be the case that activists will focus their attentions on more receptive boards, where change can be affected faster. As these situations become scarcer, however, a more confrontational dynamic is bound to ensue.

That's where other shareholders come in, and support from traditional investors may well surprise you.

Read more: Stock Spirits boss Chris Heath steps down over shareholder and strategy row

Proxy Insight has analysed the voting of key investors at Proxy Contests since 2012 and found that investors support at least one dissident nominee 47 per cent of the time, with key investors such as T. Rowe Price, Deutsche, Goldman Sachs, AllianceBernstein and Dimensional all backing a dissident over half of the time.

This support is nonetheless tempered, as investors typically only support one-fifth to one-quarter of the dissident's nominees. Many are happy to send directors a strong message but are unlikely to give activists a controlling position.

Turning our attention back to Stock Spirits, the fact that Western Gate encouraged a majority of shareholders to back its rebellion is a hugely significant precedent.

Wherever activism goes, there will always be a few irreconcilable disagreements that require the full shareholder base to step in. The UK is likely to be no different.

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