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Time-out

International investors have voiced their concerns about the Dutch proposal that would impose a legally sanctioned one-year time-out period in the case of unwanted acquisitions. The investors’ concerns appear to be justified. The cure seems to be worse than the ailment for an open economy like the Netherlands.   In a letter to the Lower House of the Dutch Parliament, Dutch Minister of Economic Affairs Henk Kamp put forward several options for giving the boards of Dutch companies more time in the event of unwanted acquisition attempts. Examples include making it easier to introduce protective measures, raising the minimum percentage for fulfilment of a bid, including a minimum consideration period in the Dutch Public Bids Decree and introducing a legally sanctioned one-year time-out period for company boards.   The Dutch government also wants to conduct an analysis of sectors that provide a critical service (drinking water, chemicals, nuclear, payments, aviation, shipping handling, defence and politics). It is furthermore examining the reciprocity of laws in non-EU countries (including the US and China). This is because what is allowed in the Netherlands isn’t always allowed in other countries.   The proposal for a one-year time-out has particularly caused a stir. In a letter to Minister Kamp, the International Corporate Governance Network (ICGN), supported by 13 international institutional investors, called it an ‘unduly harsh provision that damages shareholder protections to the detriment of good corporate governance, efficient markets and sustainable value creation.’   The proposed measures have been prompted by the attempted acquisitions of Unilever by Kraft Heinz and of AkzoNobel by PPG. The debate on this topic had, however, already been sparked by Bpost’s attempt to acquire PostNL. A salient detail is that none of these companies operate in one of the critical service sectors the Dutch Ministry of Economic Affairs are now going to examine.   What’s more, AkzoNobel has an excellent arsenal of protective devices at its disposal and has essentially been taken under the protection of the Enterprise Section of the Amsterdam Court of Appeal. The majority of the shares in AkzoNobel are held by foreign investors and the company scarcely plays a role in Dutch society. Paint is not a vital product and the AkzoNobel head office provides only limited employment. AkzoNobel did, however, sell Organon to MSD, which subsequently moved most of the relevant R&D activities out of the Netherlands.   The resistance against the proposed acquisition of PostNL by Bpost last year was remarkable too. A well-developed postal company from a friendly neighbouring country that wants to acquire a moribund and floundering postal company and provide all kinds of guarantees. It seemed like a great deal, but it wasn’t allowed.   The proposed measures create a danger that international investors will take a more reluctant view towards investments in the Netherlands. While this could be compensated by Dutch institutional investors making more investments in the Netherlands, they already distanced themselves from the country years ago. This isn’t likely to change any time soon given the growing threat of a higher Dutch discount. As a result it is becoming significantly more difficult and more expensive for Dutch companies to raise capital.   In order to promote high-quality employment in the Netherlands, it would be wiser for Kamp to spend the rest of his time as Minister of Economic Affairs on matters such as abolishing the bonus ceiling for banks. More high-quality employment could be gained by attracting banks leaving London than by implementing artificial protection for underperforming companies.

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Time-out

International investors have voiced their concerns about the Dutch proposal that would impose a legally sanctioned one-year time-out period in the case of unwanted acquisitions. The investors’ concerns appear to be justified. The cure seems to be worse than the ailment for an open economy like the Netherlands.   In a letter to the Lower House of the Dutch Parliament, Dutch Minister of Economic Affairs Henk Kamp put forward several options for giving the boards of Dutch companies more time in the event of unwanted acquisition attempts. Examples include making it easier to introduce protective measures, raising the minimum percentage for fulfilment of a bid, including a minimum consideration period in the Dutch Public Bids Decree and introducing a legally sanctioned one-year time-out period for company boards.   The Dutch government also wants to conduct an analysis of sectors that provide a critical service (drinking water, chemicals, nuclear, payments, aviation, shipping handling, defence and politics). It is furthermore examining the reciprocity of laws in non-EU countries (including the US and China). This is because what is allowed in the Netherlands isn’t always allowed in other countries.   The proposal for a one-year time-out has particularly caused a stir. In a letter to Minister Kamp, the International Corporate Governance Network (ICGN), supported by 13 international institutional investors, called it an ‘unduly harsh provision that damages shareholder protections to the detriment of good corporate governance, efficient markets and sustainable value creation.’   The proposed measures have been prompted by the attempted acquisitions of Unilever by Kraft Heinz and of AkzoNobel by PPG. The debate on this topic had, however, already been sparked by Bpost’s attempt to acquire PostNL. A salient detail is that none of these companies operate in one of the critical service sectors the Dutch Ministry of Economic Affairs are now going to examine.   What’s more, AkzoNobel has an excellent arsenal of protective devices at its disposal and has essentially been taken under the protection of the Enterprise Section of the Amsterdam Court of Appeal. The majority of the shares in AkzoNobel are held by foreign investors and the company scarcely plays a role in Dutch society. Paint is not a vital product and the AkzoNobel head office provides only limited employment. AkzoNobel did, however, sell Organon to MSD, which subsequently moved most of the relevant R&D activities out of the Netherlands.   The resistance against the proposed acquisition of PostNL by Bpost last year was remarkable too. A well-developed postal company from a friendly neighbouring country that wants to acquire a moribund and floundering postal company and provide all kinds of guarantees. It seemed like a great deal, but it wasn’t allowed.   The proposed measures create a danger that international investors will take a more reluctant view towards investments in the Netherlands. While this could be compensated by Dutch institutional investors making more investments in the Netherlands, they already distanced themselves from the country years ago. This isn’t likely to change any time soon given the growing threat of a higher Dutch discount. As a result it is becoming significantly more difficult and more expensive for Dutch companies to raise capital.   In order to promote high-quality employment in the Netherlands, it would be wiser for Kamp to spend the rest of his time as Minister of Economic Affairs on matters such as abolishing the bonus ceiling for banks. More high-quality employment could be gained by attracting banks leaving London than by implementing artificial protection for underperforming companies.

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Court as oasis of calm

The management of a company is responsible for the strategy and is not obligated to engage in substantive talks with a serious bidder. This clear and equally consistent ruling of the Enterprise Section of the Amsterdam Court of Appeal brought an end to the discussion between the management and shareholders of AkzoNobel concerning the bid from PPG. The court once again proved to be a highly effective oasis of calm when emotions start running high.   The unsolicited bid from PPG for AkzoNobel has caused quite a stir in the Dutch corporate community. It has evoked reactions ranging from barbarians at the gate and panic in the polder to calls for new rules against the undesired sell-off of the Dutch business community. Experts and politicians have fallen over each other to come up with solutions to this pressing problem. Some of these are genuinely independent recommendations and others are presumably paid third-party endorsements. In short: these are confusing times.   At least one seasoned expert kept his cool amid the tumult: Huub Willems, former Chair of the Enterprise Chamber of the Amsterdam Court of Appeal. He expressed his misgivings in het Financieele Dagblad: ‘There is an assessment framework in place and everyone knows how it works. And that assessment framework is characterised by legal nuance and prevents shooting from the hip.’   Acquisitions take place in a private law atmosphere and Willems believes it should stay that way. ‘It would be extremely worrying if the government or a governmental body, for example the Netherlands Authority Financial Markets, were to start assessing the private business community in its entirety, as is the case in a state-controlled economy. I absolutely do not understand why, of all people, members of the business community seek these kinds of solutions.’   Acquisition processes are emotional rollercoasters. Board members feel their authority and position is under attack, employees are afraid of losing their jobs, trade unions are fearful for their members and shareholders want to see returns. One misplaced comment can spark upheaval. And that happens to be Anthony Burgmans’ trademark specialty. An unprecedentedly large number of big investors sided with Elliot in the case at the Enterprise Section of the Amsterdam Court of Appeal.   While the court crushed the shareholders’ demand to call a meeting with the only aim being to force Burgmans’ resignation also sent a clear message to the management of AkzoNobel: it cannot ignore shareholders’ incomprehension of its rejection of the bid. The Enterprise Chamber of the Amsterdam Court of Appeal is of the opinion that a continuing lack of confidence among a substantial proportion of the shareholders is damaging to the company and all its stakeholders. But they do not yet think it is their place to force AkzoNobel to provide a detailed explanation, but it must be provided nonetheless.   The Dutch system has worked and restored calm for the short term. But there is a greater danger looming in the longer term: international investors could start seeing the Netherlands as a place where shareholders have very little say when push comes to shove. The underlying nuance of the court’s message will not have escaped them.   It is up to the directors of Dutch companies to eliminate this potential resistance among investors through better communications and clear messages. The way in which the supervisory directors of AkzoNobel, ASM International, PostNL and TMG have recently done this can serve as an example of how not to do it.

Read more...

Court as oasis of calm

The management of a company is responsible for the strategy and is not obligated to engage in substantive talks with a serious bidder. This clear and equally consistent ruling of the Enterprise Section of the Amsterdam Court of Appeal brought an end to the discussion between the management and shareholders of AkzoNobel concerning the bid from PPG. The court once again proved to be a highly effective oasis of calm when emotions start running high.   The unsolicited bid from PPG for AkzoNobel has caused quite a stir in the Dutch corporate community. It has evoked reactions ranging from barbarians at the gate and panic in the polder to calls for new rules against the undesired sell-off of the Dutch business community. Experts and politicians have fallen over each other to come up with solutions to this pressing problem. Some of these are genuinely independent recommendations and others are presumably paid third-party endorsements. In short: these are confusing times.   At least one seasoned expert kept his cool amid the tumult: Huub Willems, former Chair of the Enterprise Chamber of the Amsterdam Court of Appeal. He expressed his misgivings in het Financieele Dagblad: ‘There is an assessment framework in place and everyone knows how it works. And that assessment framework is characterised by legal nuance and prevents shooting from the hip.’   Acquisitions take place in a private law atmosphere and Willems believes it should stay that way. ‘It would be extremely worrying if the government or a governmental body, for example the Netherlands Authority Financial Markets, were to start assessing the private business community in its entirety, as is the case in a state-controlled economy. I absolutely do not understand why, of all people, members of the business community seek these kinds of solutions.’   Acquisition processes are emotional rollercoasters. Board members feel their authority and position is under attack, employees are afraid of losing their jobs, trade unions are fearful for their members and shareholders want to see returns. One misplaced comment can spark upheaval. And that happens to be Anthony Burgmans’ trademark specialty. An unprecedentedly large number of big investors sided with Elliot in the case at the Enterprise Section of the Amsterdam Court of Appeal.   While the court crushed the shareholders’ demand to call a meeting with the only aim being to force Burgmans’ resignation also sent a clear message to the management of AkzoNobel: it cannot ignore shareholders’ incomprehension of its rejection of the bid. The Enterprise Chamber of the Amsterdam Court of Appeal is of the opinion that a continuing lack of confidence among a substantial proportion of the shareholders is damaging to the company and all its stakeholders. But they do not yet think it is their place to force AkzoNobel to provide a detailed explanation, but it must be provided nonetheless.   The Dutch system has worked and restored calm for the short term. But there is a greater danger looming in the longer term: international investors could start seeing the Netherlands as a place where shareholders have very little say when push comes to shove. The underlying nuance of the court’s message will not have escaped them.   It is up to the directors of Dutch companies to eliminate this potential resistance among investors through better communications and clear messages. The way in which the supervisory directors of AkzoNobel, ASM International, PostNL and TMG have recently done this can serve as an example of how not to do it.

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Will the real activist please stand up?

A shareholder who, based on strategic analysis, takes a different view than the management of a listed company and says so is readily called an activist and is also treated as such in the Netherlands. The question is whether this approach contributes to a meaningful discussion with shareholders and helps the company’s reputation among investors.    Eminence Capital is the second largest shareholder of ASM International (ASMI) with a stake of 9.6%. The US-based investor has been a shareholder in the company for more than three years and has a long-term investment focus. Eminence is of the opinion that ASMI would gain strength and value if it were to sell its remaining 34% stake in its subsidiary ASM PT that is listed in Hong Kong.   Companies and fellow investors usually appreciate the strategic analyses made by investors and analysts. After all, specialised professionals have contacts in the sector, conduct thorough analyses before investing and closely track developments at companies. Relations are usually friendly until a difference of opinion arises and the investor makes an issue of it. That’s when sentiment can turn in a heartbeat.   ASMI is not just any company. It was founded by Arthur del Prado. He was a leading force in the Dutch semiconductor industry and was awarded the prestigious Legend of the Industry award. Del Prado was the founder of ASMI, ASML, ASM Fico (currently BESI), Mapper Lithography and also ASM PT. He passed away in September 2016. His son Chuck del Prado has served as CEO of ASMI since 2008.   The Supervisory Board is chaired by Jan Lobbezoo, a trusted friend of Arthur del Prado. And the ADP Stichting, the foundation in which Arthur del Prado’s shares were placed after his death, is still the largest shareholder. This has for years made ASMI a bulwark that is hard to break through for shareholders who have a different point of view than the management. The sale of ASM PT has been a topic of debate for years.   ASMI is a high-quality technology company that holds a leading international market position and has a CEO whose English is better than his Dutch. This international attitude is, however, scarcely reflected in the corporate governance policy.   The General Meeting of Shareholders in Amsterdam was actually the picture of Dutch pernickety culture. The CEO gave a ninety-minute presentation and took all the time in the world to answer questions from shareholders. But he didn’t have time for a discussion of the strategic objections raised by Eminence. Before the discussion of them could even get started, Chairman Lobbezoo decided it was high time for ‘beer and bites’.   The fascinating thing is that Eminence and the ASMI management actually agree on a number of points. So not many new arguments against Eminence’s standpoint were put forward. The timing of the sale of the stake in ASM PT seems to be the main issue.   But there was nonetheless tension in the air that did not benefit the dialogue. And that damaged ASMI’s reputation as an open and modern company. It makes you wonder whether a company that treats a large and engaged shareholder this way is not itself showing activist inclinations. And in doing so harming its own reputation and that of other Dutch companies among international investors.   

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Will the real activist please stand up?

A shareholder who, based on strategic analysis, takes a different view than the management of a listed company and says so is readily called an activist and is also treated as such in the Netherlands. The question is whether this approach contributes to a meaningful discussion with shareholders and helps the company’s reputation among investors.    Eminence Capital is the second largest shareholder of ASM International (ASMI) with a stake of 9.6%. The US-based investor has been a shareholder in the company for more than three years and has a long-term investment focus. Eminence is of the opinion that ASMI would gain strength and value if it were to sell its remaining 34% stake in its subsidiary ASM PT that is listed in Hong Kong.   Companies and fellow investors usually appreciate the strategic analyses made by investors and analysts. After all, specialised professionals have contacts in the sector, conduct thorough analyses before investing and closely track developments at companies. Relations are usually friendly until a difference of opinion arises and the investor makes an issue of it. That’s when sentiment can turn in a heartbeat.   ASMI is not just any company. It was founded by Arthur del Prado. He was a leading force in the Dutch semiconductor industry and was awarded the prestigious Legend of the Industry award. Del Prado was the founder of ASMI, ASML, ASM Fico (currently BESI), Mapper Lithography and also ASM PT. He passed away in September 2016. His son Chuck del Prado has served as CEO of ASMI since 2008.   The Supervisory Board is chaired by Jan Lobbezoo, a trusted friend of Arthur del Prado. And the ADP Stichting, the foundation in which Arthur del Prado’s shares were placed after his death, is still the largest shareholder. This has for years made ASMI a bulwark that is hard to break through for shareholders who have a different point of view than the management. The sale of ASM PT has been a topic of debate for years.   ASMI is a high-quality technology company that holds a leading international market position and has a CEO whose English is better than his Dutch. This international attitude is, however, scarcely reflected in the corporate governance policy.   The General Meeting of Shareholders in Amsterdam was actually the picture of Dutch pernickety culture. The CEO gave a ninety-minute presentation and took all the time in the world to answer questions from shareholders. But he didn’t have time for a discussion of the strategic objections raised by Eminence. Before the discussion of them could even get started, Chairman Lobbezoo decided it was high time for ‘beer and bites’.   The fascinating thing is that Eminence and the ASMI management actually agree on a number of points. So not many new arguments against Eminence’s standpoint were put forward. The timing of the sale of the stake in ASM PT seems to be the main issue.   But there was nonetheless tension in the air that did not benefit the dialogue. And that damaged ASMI’s reputation as an open and modern company. It makes you wonder whether a company that treats a large and engaged shareholder this way is not itself showing activist inclinations. And in doing so harming its own reputation and that of other Dutch companies among international investors.   

Read more...