Neil Humphreys, partner at executive search firm Howgate Sable
It’s official: the corporate raider is back en vogue. A controversial phenomenon that was widely considered to be a relic of the 1980’s along with the mullet and Smash has made its way into the modern business world.
While the ethics surrounding corporate raiders are debatable, a growing number of companies are undergoing their aggressive shake-ups, suggesting it’s a role that’s here to stay. So, here’s an overview of the function of a corporate raider and what it means for business today.
What is a corporate raider?
The term ‘corporate raider’ was regularly used in the 80s to label those individuals or groups that carried out hostile takeovers of businesses. They sought out companies that appeared to be struggling – typically having low share prices in comparison to their peers – invested in them, and implemented a range of often ruthless tactics to improve their value, before selling up and making a healthy profit.
Their mission was simple: to incite change in a business in order to increase the value of their investment. To achieve this, they often introduced share repurchase programmes, increased dividends and, crucially, reduced expenses where possible. That would mean redundancies, selling the least profitable divisions of the company and stripping assets.
Two of the most prolific corporate raiders of the 80s were Lord Hanson, owner of Hanson PLC, and James Goldsmith, who both took controlling stakes in PLCs with a view of releasing value from the assets of the target businesses.
The pros and cons
While such takeovers naturally provoke anguish within much of the business community, thanks to their cut-throat nature, it’s possible to look on them positively. They often serve to galvanise stagnant businesses into rethinking their strategy, improving their balance sheet and catching up with competitors. After all, improved share price is the aim of the game and this is a tried and tested way of achieving that.
However, a corporate raider isn’t in it for the long term. They want to make a profit and they want to make it fast, which usually means aborting any existing long-term strategies, while executing short-term ones that directly affect employee salaries, jobs and investment in innovation. Divisions are closed down or sold, people are sacked and development is halted – it paints a pretty bleak picture. Whether it’s for the greater good or not is up for debate.
‘Activist investors’: takeovers in the 21st century
The received wisdom is that the 1990s saw the end of the corporate raider, but the figures say otherwise. The number of publicly listed companies that were targeted by activists rose by 48 per cent between 2013 and 2016 and, although there was a dip in quantity last year, the eyes of what are now called ‘activist investors’ were on larger companies – the likes of Nestle, Procter & Gamble, General Electric and AkzoNobel, which itself famously acquired the chemical giant ICI in 2008.
The targets of activist investors remain the same: perceived under-performers with a lowered market value due to financial results and the perception of analysts. Take General Electric (GE) for example: in 2015, Trian Partners, noticing GE’s plummeting stock market value, swept in on the company, bought a 1.5 per cent stake and influenced the shareholders to join its mission to increase share prices. What was once a hugely innovative and enterprising company under the stewardship of Jeff Immelt has now been taken over by John Flannery, employed in 2017, who is overseeing a programme to sell GE businesses, dramatically cut expenses, boost profits and raise dividends – classic corporate raider behaviour.
Even banks such as Barclays and Credit Suisse are not immune to the attentions of activists and, most recently in the UK, GKN – a PLC with a history dating back to the times of the Napoleonic wars – has been acquired by Melrose PLC which, funnily enough, is led by a former director of Hanson PLC.
Is it therefore a failure of the strategy of the leadership of these targeted companies to deliver shareholder value over and above that an activist can achieve or the availability of cash at historically low interest rates that is fuelling the ability to acquire such businesses in today’s climate?
Is resistance to activist investors futile?
The defences to activist approaches appear limited – in the case of GKN, for example, the business fiercely resisted the advances of Melrose, yet it still went ahead. However, in some cases the institutional shareholders have seriously conflicted positions, owning substantial shareholdings in both the aggressor and the target.
Outstanding performance is clearly a factor in the vulnerability of a business to an aggressive takeover. If a company has realised its value and structured itself efficiently, it follows that it should be untouchable by activist investors. ICI was a famous example of a business dramatically reorganising itself in an attempt to fight off the attentions of Lord Hanson. However, he managed to take a 2.8 per cent stake. And reality suggests that, given the ebb and flow of trade cycles and market shifts – not to mention innovation and technical developments – it is highly unlikely that any listed business can fully resist such approaches in the long term.
What does the future hold?
The fact that not just failing businesses, but also those that are performing well without delivering show-stopping performance, are now viable targets for hostile takeovers suggests a paradigm shift. It’s therefore never been more important to have a critically tested and verified operating model in place. To achieve this may require a lengthy and laborious organisation redesign, but taking these active steps to improve your position before an external predator does so may well be the best hope for an independent future.
Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources
By Julie Zhu and Yilei Sun
HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own brand and could launch some models this year, four sources said, as the world’s largest telecommunications equipment maker, battered by U.S. sanctions, explores a strategic shift.
Huawei Technologies Co Ltd is in talks with state-owned Changan Automobile and other automakers to use their car plants to make its electric vehicles (EVs), according to two of the people familiar with the matter.
Huawei is also in discussions with Beijing-backed BAIC Group’s BluePark New Energy Technology to manufacture its EVs, said one of the two and a separate person with direct knowledge of the matter.
The plan heralds a potentially major shift in direction for Huawei after nearly two-years of U.S. sanctions that have cut its access to key supply chains, forcing it to sell a part of its smartphone business to keep the brand alive.
Huawei was placed on a trade blacklist by the Trump administration over national security concerns. Many industry executives see little chance that blocks on the sale of billions of dollars of U.S. technology and chips to the Chinese company, which has denied wrongdoing, will be reversed by his successor.
A Huawei spokesman denied the company plans to design EVs or produce Huawei branded vehicles.
“Huawei is not a car manufacturer. However through ICT (information and communications technology), we aim to be a digital car-oriented and new-added components provider, enabling car OEMs (original equipment manufacturers) to build better vehicles.”
Huawei has started internally designing the EVs and approaching suppliers at home, with the aim of officially launching the project as early as this year, three of the sources said.
Richard Yu, head of Huawei’s consumer business group who led the company to become one of the world’s largest smartphone makers, will shift his focus to EVs, said one source. The EVs will target a mass-market segment, another source said.
All the sources declined to be named as the discussions are private.
Chongqing-based Changan, which is making cars with Ford Motor Co, declined to comment. BAIC BluePark did not respond to repeated requests for comment.
Shares of Changan’s main listed company Chongqing Changan Automobile rose 8% after Reuters reported the discussions. BluePark’s shares jumped by their maximum 10% daily limit.
GROWING EV MARKET
Chinese technology firms have been stepping up their focus on EVs in the world’s biggest market for such vehicles, as Beijing heavily promotes greener vehicles as a means of reducing chronic air pollution.
Sales of new energy vehicles (NEVs), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, are expected to make up 20% of China’s overall annual auto sales by 2025.
Industry forecasts put China’s NEV sales at 1.8 million units this year, up from about 1.3 million in 2020.
Huawei’s ambitious plans to make its own cars will see it join a raft of Asian tech companies that have made similar announcements in recent months, including Baidu Inc and Foxconn.
“The novel and complicated U.S. restrictions on semiconductors to Huawei have slowly been strangling the company,” said Dan Wang, a technology analyst with research firm Gavekal Dragonomics.
“So it makes sense that the company is pivoting to less chip-intensive industries in order to maintain operations.”
In the United States, Amazon.com Inc and Alphabet Inc are also developing auto-related technology or investing in smart-car startups.
Huawei has been developing a swathe of technologies for EVs for years including in-car software systems, sensors for automobiles and 5G communications hardware.
The company has also formed partnerships with automakers such as Daimler AG, General Motors Co and SAIC Motor to jointly develop smart auto technologies.
It has accelerated hiring of engineers for auto-related technologies since 2018.
Huawei was awarded at least four patents related to EVs this week, including methods for charging between electric vehicles and for checking battery health, according to official Chinese patent records.
Huawei’s push into the EV market is currently separate from a joint smart vehicle company it co-founded along with Changan and EV battery maker CATL in November, two of the sources said.
(Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing; additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Richard Pullin)
Facebook switches news back on in Australia, signs content deals
By Renju Jose and Jonathan Barrett
SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its popular social media site on Friday and announced preliminary commercial agreements with three small local publishers.
The moves reflected easing tensions between the U.S. company and the Australian government, a day after the country’s parliament passed a law forcing it and Alphabet Inc’s Google to pay local media companies for using content on their platforms.
The new law makes Australia the first nation where a government arbitrator can set the price Facebook and Google pay domestic media to show their content if private negotiations fail. Canada and other countries have shown interest in replicating Australia’s reforms.
“Global tech giants, they are changing the world but we can’t let them run the world,” Australian Prime Minister Scott Morrison said on Friday, adding that Big Tech must be accountable to sovereign governments.
Facebook, whose 8-day ban on Australian media captured global attention, said it had signed partnership agreements with Schwartz Media, Solstice Media and Private Media. The trio own a mix of publications, including weekly newspapers, online magazines and specialist periodicals.
Facebook did not disclose the financial details of the agreements, which will become effective within 60 days if a full deal is signed.
“These agreements will bring a new slate of premium journalism, including some previously paywalled content, to Facebook,” the social media company said in a statement.
The non-binding agreements allay some fears that small Australian publishers would be left out of revenue-sharing deals with Facebook and Google.
“It’s never been more important than it is now to have a plurality of voices in the Australian press,” said Schwartz Media Chief Executive Rebecca Costello.
Facebook on Tuesday struck a similar agreement with Seven West Media, which owns a free-to-air television network and the main metropolitian newspaper in the city of Perth.
The Australian Broadcasting Corp has said it was also in talks with Facebook.
Google Australia managing director Mel Silva said in a statement published on Friday the company had found a “constructive path to support journalism”.
She thanked Australian users of the search engine for “bearing with us while we’ve sent you messages about this issue”.
Facebook and Google threatened for months to pull core services from Australia if the media laws, which some industry players claim are more about propping up ailing local media, took effect.
While Google struck deals with several publishers including News Corp as the legislation made its way through parliament, Facebook took the more drastic step of blocking all news content in Australia.
That stance led to amendments to the laws, including giving the government the power to exempt Facebook or Google from mandatory arbitration, and Facebook on Friday began restoring the Australian news sites.
(Reporting by Renju Jose and Jonathan Barrett; Editing by Richard Pullin and Jane Wardell)
China’s factory activity growth likely moderated during February holiday lull – Reuters poll
BEIJING (Reuters) – China’s factory activity likely grew at a slightly slower rate in February as factories closed for the Lunar New Year holiday, a Reuters poll showed, although growth is expected to remain firm, buoyed by an early resumption of production.
The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip marginally to 51.1 in February from 51.3 in January, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.
Chinese factories typically scale back operations or close for lengthy periods around the Lunar New Year holiday, which fell in the middle of February this year.
However, the resurgence of COVID-19 cases in the winter had prompted local governments and companies to dissuade workers from travelling back to their hometowns, giving a boost to the earlier-than-usual resumption of production at many factories, analysts say.
“Although government COVID-19 prevention measures may constrain some manufacturing activities in the near-term, the fact that a majority of migrant workers stayed in their workplace cities for the holiday should facilitate an earlier resumption of business activity following the holiday this year,” said analysts at Nomura in a note to client on Thursday.
Wang Zhishen, a migrant worker from Gansu, told Reuters that his factory, a manufacturer of logistics boxes in the manufacturing hub of Dongguan, only closed for three days during the holiday, thanks to overwhelming businesses. Lured by the 1,500-yuan cash subsidy his factory offered, he chose to work through the holiday.
The Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, with consumers opening up their wallets after months of hesitation. Growth is now set to rebound sharply this quarter, also helped by the low base effect of a year ago.
The country has successfully curbed the domestic transmission of the COVID-19 virus in northern China, with the national health authority reporting zero new local cases for the 11th straight day. Cities that were on lockdown have since vowed to push for a work resumption at full speed.
The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.
The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will dip slightly to 51.4 from 51.5 in January.
(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)
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