Why the ASX is Ripe for Shareholder Activism
Gone are the days of the corporate raider stripping assets from profitable companies in the name of personal profit. The new kid in town is the shareholder activist. Activists are relatively new (in the history of financial markets) but highly influential players when it comes to listed securities. Their strategies and actions are wide and varied.
In fact, activists are growing by the dozen if recent data are anything to go by. Figures from a Credit Suisse report published in 2019 show the number of activist campaigns ballooned in the decade from 2009 to 2019 from 25 to 930 at the end of 2018.[1] And for the first half of 2019, the figure was already sitting at 646.
Activity has slowed a lot since the onset of a pandemic, but momentum is starting to build again. Evidently, you could say the main distinction between the activist and the corporate raider is the intent to work in a constructive manner with listed companies to realise shareholder value. They can still be the proverbial ‘thorn in the side’ but in a much nicer way.
The ASX… Ripe for the Picking?
While the level of shareholder activism in Australia pales in comparison to the U.S. (169 campaigns in the U.S. in the first three months of 2021 versus 12 on the ASX)[2], we still have the second most active market in the world for activism (just ahead of Japan). There are three main factors driving this activity down under including:
The ‘Two Strikes’ Rule on the ASX
This rule allows just 25% of shareholders to vote down a company’s remuneration report and ultimately spill the board of directors (there is no such tool for activists in the U.S.)
Only a 5% vote to call an Extraordinary General Meeting (EGM)
Adding to this rule, recent amendments to regulatory guidelines now allow shareholders of ASX-listed companies to talk to each other about company performance.
Large Institutional Shareholdings
This is self-evident given the size of our superannuation pool. Back this with a strong media presence which can quickly affect the reputation and share price of companies in a matter of minutes.
Picking on the Little Kids
The market cap of companies engaging in activism on the ASX is skewed heavily towards the nanocap end of the market (42% in Q1 2021) with an increasing focus on board-related activism (47% of demands in Q1 2021).[3] While the bias for picking on the little kids has always been present in the Australian market, there have been short periods where activity has migrated to large caps. A good example was the period from 2014-217. That trend reversed sharply in 2018 though and has continued since then.
Obviously, size matters in terms of any news getting picked up by the media, so the nano and micro-cap stocks who end up in the crosshairs of shareholder activists barely register a blip in the major metro news columns—unless there is a particularly salient angle or agile media professional supporting the efforts of activists.
The media trend is starting to shift with some large caps making headlines in the first quarter of 2021. They include Woodside Petroleum, Tabcorp, Santos, Rio Tinto, AMP, and Bank of Queensland, and others. We expect this increased share of media coverage to continue as activists stake their claim on the ASX.
Looking Forward at Shareholder Activism on the ASX
The current stats say a lot about the level of activism in the U.S. versus Australia and the rest of the world. You could almost say activity is non-existent outside the US based on the figures above. But the two-strikes rule and other regulations on the Australia Stock Exchange (ASX) are clearly a stimulant for activity in our own backyard. Watch this space for some exciting (constructive) battles ahead.
REFERENCES
[1] Data from Credit Suisse 2019 Fourth Quarter Corporate Insights report titled, “Shareholder Activism: an evolving challenge.”
[2] Data from Insightia report, “Shareholder Activism in Q1 2021.”
[3] Data from Insightia report, “Shareholder Activism in Q1 2021.”