A bizarre fight has started in the City of London, between the board of the London Stock Exchange Group (LSE) and Sir Chris Hohn of activist hedge fund TCI.
Hohn has called an extraordinary general meeting to remove LSE chairman, Donald Brydon, and reinstate chief executive Xavier Rolet, who is due to retire at the end of 2018.
Hohn claims that Rolet has been forced out against his will, and wants his contract extended until 2021. Rolet is bound by a non-disclosure agreement which prevents him commenting publicly on the reasons for his departure. Observers assume Rolet privately indicated to Hohn a preference to continue as chief executive.
This fight is unusual, in that activists normally seek to remove management, not reinstate retiring executives. But Hohn’s action is logical, as Rolet is widely considered one of the best chiefs in the FTSE 100. He has presided over a near sixfold rise in the share price since his appointment in June 2009 – the result of some good acquisitions, and the long stockmarket bull run.
LSE was to merge with Deutsche Boerse and Rolet to stand down, but the deal was blocked by EU antitrust regulators in March, and he decided to stay. In October, the LSE announced his retirement at the end of 2018.
Two weeks later, Hohn met with LSE chairman Brydon and, dissatisfied with his explanation for Rolet’s departure, wrote to the board, demanding Rolet’s reinstatement and Brydon’s resignation.
Hohn’s TCI owns five per cent of LSE stock (behind Blackrock and the Qatar Investment Authority), and has been publicly backed by John Armitage of $15bn hedge fund Egerton Capital who, like Hohn, commands enormous respect among peers (both have had outstanding performance).
Other major holders include Lindsell Train (thought unlikely to want to become embroiled in this fight), Invesco, and Veritas.
Backing for either side may depend on an LSE dossier on Rolet’s behaviour, which could be released this week, supporting his departure.
It is rumoured that he has been imperious, and that he and Brydon do not get on – both are tough characters who dislike opposition. Brydon, appointed in 2015, has been chairman of several quoted companies, including Smiths Group, Amersham, Royal Mail, and currently Sage Group. Rolet was a career banker, and was chief executive of Lehman in France until Lehman closed and he moved to the LSE.
Such quarrels are usually settled behind closed doors, and it’s unusual to see a board and one of its largest shareholders in such a fight, for good reason – whoever wins, shareholders lose out.
If Hohn wins and Rolet’s contract is extended, Brydon and the non-executive directors will likely be forced to resign, and replacements will need to be found. If the board wins, then Rolet’s tenure until the end of 2018 may be in question, as the board could assume he has inspired Hohn’s attack, and a new chief executive may be required, even more urgently.
The contest is too early to call. Many institutions naturally gravitate to board support, but asset managers vote with their wallets – if Rolet departs early, they fear a share price fall, while few will ignore the view of Hohn and Armitage.
The irony is that the matter could easily be resolved. If the board simply released Rolet from his confidentiality obligations, then shareholders could make a straightforward decision whether to back him or Brydon. The current situation, in which the board is to publish a circular defending its position, with Rolet continuing to be silent, serves shareholders poorly.
It’s unfortunate that the institution at the heart of London’s stock market could not be more open.