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Australia ranked the third-busiest market for activism in 2022

Corporate Governance in Australia

Boasting one of the most shareholder-friendly regulatory environments in the world, it’s no surprise that Australia ranked the third-busiest market for activism in 2022, only behind the U.S. and Japan. Yet, unlike those markets, the majority of activist engagement is being carried out by occasional activists or concerned shareholders, rather than dedicated activists, with most of the action taking place among micro and nano-cap companies.

Earlier this year, energy giant AGL named Damien Nicks as its permanent managing director and CEO following the resignation of Graeme Hunt, who had faced pressure from billionaire climate activist and top shareholder Mike Cannon-Brookes in what many consider a landmark case.

Yet Cannon-Brookes’ status as an occasional activist is emblematic of Australia. While there were 61 Australian companies facing demands in 2022, only five of those cases involved primary or partial-focused activists.

‘The market here is quite small and it’s a case of everyone knowing everyone else. Friends don’t take on friends,’ Michael de Tocqueville, Chief Investment Officer at Advocate Strategic Investments (ASI), told Insightia in an interview. In 2022, 87 activist campaigns were launched against Australia and New Zealand-based companies, excluding those related solely to environmental and social demands. That’s up from 81 campaigns in 2021, according to Insightia’s Activism module.

‘The weakening of the Australian dollar has made companies all the more attractive to activists, while the drop in equity markets and underperformance help to distinguish the leaders from the laggards that have been riding the coattails of the bull market,’ Jeremy Leibler, partner at Arnold Bloch Leibler’s corporate and M&A practice, told Insightia in an interview.

‘Companies that are feeling vulnerable are, therefore, more likely to succumb to the demands of activists.’

In 2022, 40% of activist demands were at least partially satisfied, compared with 39% in 2021.

More than half of all demands made by activists in 2022 in both Australia and New Zealand sought to either remove or add personnel to corporate boards. Australian taxi group A2B replaced Chief Executive Andrew Skelton three weeks after activist investor Sandon Capital slammed the board over a planned land swap deal.

‘The company was blaming the pandemic for all their woes, yet the evidence was that these problems occurred before the pandemic, that the strategy they were pursuing was flawed,’ Gabriel Radzyminski, founder and managing director of Sandon Capital, told Insightia.

A total of 33 board seats were won last year, up from 32 a year prior. Although most of those seats were won via settlements rather than a shareholder vote, this marks one of the only three times since 2014 where more campaigns were resolved by settlements than via proxy votes.

Opportunity awaits

De Tocqueville stressed that the shareholder-friendly regulatory environment in Australia yields plentiful opportunities for activism. Boards are not permitted to implement staggered board structures or poison pills to thwart activists, as in the U.S. and elsewhere.

Australia also plays host to the two-strikes rule wherein if a company’s executive remuneration package faces upwards of 25% opposition for two consecutive years, a spill resolution is put to shareholders, providing the opportunity to unseat any members of the board.

Radzyminski called the rule a ‘fantastic tool for focusing boards and for improving engagement.’ Yet, he also felt the rule created a false sense that activism was being undertaken. ‘At the big end of town here, there is a view that [shareholders] already do activism themselves because they vote on remuneration reports but, from our perspective, what constitutes real activism is when you set out to try and get a company to do something that it otherwise doesn’t want to do.’

Deal breakers

With stock prices down and private equity firms looking to takeover targets at cheap prices, there have been a number of cases of mergers and acquisitions being both proposed and opposed. In November, Bigtincan withdrew its offer to buy out digital workplace software company LiveTiles amid activist opposition.

‘M&A is a risk to shareholders in volatile times because shorter-term [investors] who might have bought the company very cheaply would be happy to sell at a premium,’ noted Radzyminski. ‘Whereas longer-term shareholders might have a very keen eye and appreciation for the true work of the business and not be happy with the transaction.’

ASI’s de Tocqueville echoed those sentiments in the campaign against AMP, arguing, ‘Recent asset sales and other so-called transformative simplification activities have done little to improve the company’s share price value in any meaningful way, while the company’s future strategy to grow shareholder value remains obscure, to say the least.’

For the full report, download the Corporate Governance in Australia 2023 report.

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