Dutch companies are popular with activist shareholders, as appeared again this week at Just Eat Takeaway. Are they grasshoppers looking for quick profits, or are they a welcome critical addition?
Just Eat Takeaway (JET) appeared this week to listen to the demands of its activist shareholders to divest Grubhub. According to the British Oceanwood and the American Cat Rock, the American meal delivery company, which was still enlisted last year for 7.3 billion dollars (6.8 billion euros), would demand too much energy from management. Energy that should go to the most important activity: food delivery in Europe.
In February, JET CEO Jitse Groen announced that Grubhub was not in the shop window. Now the company is investigating a full or partial sale. What has changed? ‘The top of the company has become vulnerable, so they have given in anyway,’ says Gerard van Solinge, professor of corporate law at Radboud University and lawyer at Allen & Overy. ‘The corona effect is over, so the figures were disappointing.’
The meal delivery company is by no means the only Dutch company that is attracting the attention of activist investors; small but influential shareholders who rattle on the door with a lot of noise to implement changes – often profitable for themselves. It is no coincidence that their eye is drawn to Dutch companies. Dutch companies sometimes have a lot of fat on their bones and pursue a cautious policy, two factors that can encourage shareholders to want to shake things up.
shell
In addition, hundreds of billions in capital are floating around the world in search of returns, meaning that no company is safe, no matter how large. The Netherlands also has a relatively large number of conglomerates, of which it is often said that the individual parts are worth more than the whole. Just this week, chemical company DSM sold its materials branch to an American company for 1.4 billion euros after – coincidence or not – the aforementioned Oceanwood had insisted on such a split at the end of 2020 with 0.4 percent of the shares.
Activist shareholders claim to have the recipe to create more shareholder value. They usually first put that message in a letter to management, and of course they are happy to have a cup of coffee for further explanation. If that invitation is not forthcoming, or if their proposals fall on sterile ground, they try to mobilize other investors, usually via a public letter this time addressed to other shareholders, analysts and media. In this way they hope, for example, to gather enough support to win seats on the supervisory board.
In the past year, various Dutch companies received such letters in the mail, and several appeared in the press. For example, Shell got the American hedge fund Third Point on its roof with the demand to split itself into a fossil and a sustainable company. “You can’t be everything at once,” founder Daniel Loeb wrote to his investors. “Shell tried this and the result is not good: unhappy shareholders are thirsty for returns and an unhappy society wants Shell to do more to reduce CO₂ emissions.”
bol.com
Ahold Delhaize, in turn, got representatives of the American hedge fund Elliott over coffee with the exhortation to quickly bring online store Bol.com to the stock exchange. The supermarket group opened the door to this in November, although concrete plans are not yet forthcoming. And Unilever – five years after a high-profile failed hostile takeover attempt – has also been under fire from activists since the beginning of this year because returns have lagged behind rivals such as Nestlé.
First, a small shareholder sounded the alarm, saying that the company behind Knorr, Ben & Jerry’s and Dove, among others, should do less in terms of sustainability and make more in terms of profit. The well-known activist Nelson Peltz is now also on board. Unilever cut 1,500 jobs and threw the organization “to operate more decisively”, but refused to split off the food and ice cream divisions. How it will end remains to be seen, but Unilever is now a wholly British company and can therefore no longer rely on Dutch rules for protection.
Activist investors follow ‘their’ companies very well, make in-depth analyzes and sometimes come up with very good ideas to improve the company, says Dirk-Jan Duynstee, who at law firm Clifford Chance assists activist shareholders as well as executives and supervisory directors of companies. ‘So it is certainly not always about pursuing short-term returns, for example by insisting on share buybacks or issuing more debt in order to pay higher dividends. That is really too short-sighted.’
The advice is certainly not always worth gold, notes professor Gerard van Solinge. ‘I still think ASMI is a good example of this, twelve years ago. An activist shareholder then wanted the chip machine manufacturer to sell its Asian subsidiary, because it was worth more than the entire company separately. But ASMI has always refused that and the company is now doing very well.’
Not the best name
It is not easy for activist investors to put the management in the spotlight in the Netherlands. ‘In principle, it is the case here that the management is about the strategy of a company, and not the shareholder,’ explains Duynstee. ‘As a result, the legal options for shareholders are limited. In practice, of course, activists rarely operate alone, they seek support from large disgruntled shareholders. Under that pressure, a company will often find itself forced to change its strategy.’
Shareholder activism does not have a good name in the Netherlands. Duynstee sees the legacy of the ABN Amro trauma from 2007, when the British hedge fund TCI wanted to tear the bank to pieces with a 1 percent equity stake.
Too often, he says, activist shareholders are caricatured, as if they are hyenas who are only interested in short-term profits, with no regard for the long-term interests of the company and its stakeholders; ‘social’ parties such as suppliers and customers. He also translates its simplistic conclusion to the animal kingdom. “Down with the meddlesome grasshoppers and the wolf packs, and their unwelcome criticisms and ideas.”
That makes a nuanced discussion about shareholder activism very difficult, according to the lawyer. ‘If we are not careful, in the Netherlands all power and the supposed wisdom about the strategy of the company lies exclusively with the management board and the supervisory board, without proper and healthy counterweight from shareholders, activist or not. The balance has now tipped too far.’
Waves
Van Solinge is also not fond of the grasshopper comparison. ‘Don’t forget that our pension funds also put money in activist funds, because of the high returns they achieve. So in a sense we are all activists.’
Whether the activism on the Dutch stock market is going crescendo remains to be seen. ‘It kind of goes in waves’, the professor concludes. “It also depends on how the war, inflation and bankruptcies continue. What you do see is that various companies have a lot of money in cash that they were unable to spend during the corona crisis. Then you get hijackers on the coast asking what they’re going to do with all that money. And if those companies don’t have a good answer, the activist shareholders say: just give it to us.’
Paul Singer, Elliot
Activist at AkzoNobel (2017, 5 percent stake at the time) and Ahold Delhaize (2022, 3 percent stake). Made a name for buying cheap government debt and then suing governments hard if they couldn’t repay their debts. Elliott has $52 billion under management.
Daniel Loeb, Third Point 
Activist at Shell, bought in last year for 750 million dollars. Is known as an enfant terrible of Wall Street, partly because of his campaign against the Canadian insurer Fairfax, in which he would earn money from a fall in the share price. Third Point has $18 billion under management.
Alex Captain, Cat Rock 
Activist at Just Eat Takeaway, 5 percent stake. Captain is a whale watcher. He invests in companies that in ten years will perhaps multiply tenfold and thus become the size of a whale. Cat Rock has $3 billion under management.
Nelson Peltz, Trian Fund 
Activist at Unilever, interest unknown. In 2012, he was the driving force behind the split-off of snacks such as Côte d’Or, Milka and Oreo, until then owned by Kraft Foods, into the new company Mondelez. Trian Fund has $9.2 billion under management.
Extra lock on the door: the legal reflection period
Five years ago, the Netherlands was startled by hostile takeover attempts on two crown jewels of Dutch business: AkzoNobel and Unilever. AkzoNobel was besieged by American rival PPG, which only gave in after a long legal battle. AkzoNobel then sold – to the satisfaction of the shareholders – the chemical branch for more than 10 billion euros to two investors, to continue as a paint manufacturer.
On a Friday afternoon, Unilever received an unsolicited mega offer of 135 billion euros from the American Kraft Heinz, which was helped by the Brazilian purchase billionaires of 3G. Former CEO Paul Polman had to do everything in his power to fend off the attack that same weekend, and then sell the less profitable margarine branch and buy back its own shares en masse. Polman previously abhorred such perks for shareholders, but after the robbery he was forced to hand them out to prevent new problems.
The shocked politicians in The Hague then came up with the ‘legal reflection period’. This measure gives the top of a company 250 days to come up with something if a shareholder comes forward with a hostile offer, or with a proposal to appoint or dismiss directors or supervisory directors. That does not make a hostile takeover of a Dutch company completely impossible, but in practice it is a very laborious operation.
According to critics such as Eumedion, the representative of large investors such as pension funds, such an extra lock on the door is not necessary at all, because Dutch companies are already sufficiently protected, for example via friendly foundations or priority shares with special voting rights. The (temporary) curtailment of shareholder rights and the extra protection of the incumbent directors is not appropriate in that case. Eumedion does understand measures for companies in crucial sectors such as energy, telecom and banks, for which special legislation applies to protect them against unwanted attackers. Such special legislation is also being prepared for high-tech companies such as ASML.