Shareholders who refuse to stay quiet in the face of an underperforming share price are on the increase - making life hell for UK management.
Few chairmen could be better placed than Tony Greener at Guinness to talk about what it is like living with an active investor on your shareholder register. 'Corporate hell,' would no doubt sum it up quite nicely.
Bernard Arnault, chairman of French drinks group LVMH and a substantial shareholder and non-executive director of Guinness, has made life exceedingly difficult for Greener since he announced his planned [pounds]24 billion merger with Grand Metropolitan in May.
The Frenchman did not like the idea one bit, rejecting it vociferously in public, putting forward his own plans and buying shares in Grand Metropolitan to increase his investor power. Fair enough, you may think. But well before the merger plan came to light, Arnault had become a thorn in Greener's side: a disgruntled shareholder who refused to sit back and stay quiet in the face of Guinness' underperforming share price.
While Arnault is also a trading partner with Guinness, as a dissatisfied investor the tactics he uses are typical of an increasingly prevalent variety of shareholder taking stakes in British companies: the active investor.
Arnault had tried to press for a demerger of Guinness' brewing interests behind closed doors but without success. By results time last year, the malcontent had had enough of doing it the British way. He went public, calling the Sunday press to breakfast meetings at London's Savoy, venting his anger and airing his demerger plan. By Monday the Guinness share price was on the move; daily papers picked up the story and analysts scuttled back to their desks to do the sums on a demerger.
For Greener, the damage was done: the investment community had been given a very public reminder that Guinness had underperformed the FTSE All Share Index by 35% over the previous five years. Even the most sympathetic fund manager now wanted action.
A breed more common in the US, active investors come in all guises and are rarely welcome news for management. Their most visible form are the 'active funds' which buy into underperforming situations and seek to increase performance using a range of often controversial techniques. A prime example of this species is Hong Kong-based Regent Pacific Group, which is currently trying to force the break-up of ailing Hambros (see p42).
Then there are the corporate raiders, high-profile individuals who buy stakes, take seats on the board and wield influence from within. And there are the traditional fund managers, who - under ever more pressure themselves to perform - are increasingly busy behind closed doors, devising and pushing through corporate change.
UK Active Value (UKAV), an investment fund worth around [pounds]200-million and run by Julian Treger and Brian Myerson, is the public tip of the active investor iceberg in Britain. Variously dubbed as raiders, buccaneers, cowboys, or as one analyst put it, 'I keep their number filed under B for bastards', the duo set up their first and main fund in 1993 and have used it to take stakes in companies like Signet, Scholl, Kenwood, Greycoat and Hogg Robinson.
Their investment formula goes like this: buy a stake in an underperforming business; call for radical corporate change such as 'the chief executive must go', or, as in the case of property firm Greycoat, 'put yourself up for sale'; leak this to a Sunday newspaper; get other shareholders on side and once you have the required 10%, call an EGM and force a vote on your proposals.
'My heart sank when I saw them appear on our shareholder register,' says the head of one company in which UKAV holds a stake and who did not want to be identified. 'I thought, this is going to be trouble and waste a lot of time. They don't care how they go about things; they buy shares at x and want to see them get to y and will try and get there by any means. …