IR Weekly – Monday 10th August
Welcome to FTI Consulting’s IR Weekly newsletter.
This week we consider the ramifications of the shift towards virtual AGMs. We also consider whether corporate social responsibility initiatives hurt shareholder returns; mourn the death of the suit; seek consolation in the history of financial bubbles with the knowledge that it could be worse than it is now; explore the role of technology in M&A deal origination, and finally, discuss the curious case of TikTok, which is embroiled in one of 2020’s most controversial takeover situations.
This week’s news
Don’t forget the sandwiches…
Investors may be losing more than just tea and sandwiches as AGMs turn virtual, according to the Financial Times. As social distancing restrictions have pushed companies towards closed-door or online AGM formats, investors have complained that this impedes their ability to participate as company owners, with fears that this will allow companies to move these events online for good, and do the ‘bare minimum’ to engage investors. Conversely, many management teams are relishing the opportunity to look anew at the AGM format. As Peter Parry, the policy director of the UK Shareholders’ Association states, “The current format needs a fundamental review.” Companies may want to exercise caution in fully embracing the digital format, given evidence of recent AGM engagement. Sainsbury’s recent AGM, for instance, typically held at the QE2 conference centre and attended by hundreds, reportedly saw only eight registered private shareholders in its digital format.
Silver bullet or double-edged sword?
While growing demands for corporate social responsibility have undoubtedly been a theme of 2020 so far, as the Financial Times reports, CSR efforts can be seen as something of a double edged sword for companies. Research conducted by Pennsylvannia State University, Erasmus University, and HEC Paris’ business school has shown that companies which rank highly on CSR measures also have a higher likelihood of being the target of hedge fund activism. The research claims this is due to activist investor perception that CSR is a distraction from focusing on shareholder return. This is especially so if companies’ CSR efforts are seen as superficial or ‘greenwashing.’ The research, which covers a period to 2016, is not entirely negative on ESG and CSR efforts however, with one of the report’s writers stating that activists are not typically opposed to the principle of CSR.
The death of the suit
There was a time when only cocky hedge fund managers eschewed the suit. Now they are joined by everybody from long-only investors to senior company management. Nobody is wearing a suit anymore and Tailored Brand’s filing for bankruptcy, as reported by Reuters Breakingviews, is only the latest casualty. Tailored Brands is a fascinating case study in M&A itself but it also reminds us of the terrible structural challenges for anyone selling suits: the trend towards dress-down Fridays, the shift from physical stores to online shopping and finally the phenomenon of Working From Home during the pandemic.
It could be worse
The authors of a global history of financial bubbles write in City AM that while 2020 has been a turbulent year for financial markets, it’s got nothing on the 1720 South Sea Bubble. Three hundred years on from South Sea, they argue that the playbook for engineering a financial bubble remains largely unchanged – money, debt, marketability, and speculation. Then, they say, all that is needed is a new political initiative or a new technology to set the whole thing in motion.
On the origin of deals
Matt Levine at Bloomberg Opinion discusses efficiencies in M&A deal origination, a process that has traditionally begun with junior investment bankers compiling long lists of potential deals before pitching them to targets. Goldman Sachs has sought to automate that process with an app called Gemini that relies on crude financial metrics to suggest opportunities for mergers, partnerships, and spin-offs. Rumours of the death of the investment banker as matchmaker are highly exaggerated, however – Levine argues that simply automating portions of the targeting process doesn’t reduce the need for advisers to step in and actually exercise their judgment, use their structuring and negotiating expertise, and get the deal done.
And finally…the clock ticks for TikTok
Financial Times’ Due Diligence column reports on TikTok, the hugely popular social media platform that is at the centre of one of 2020’s most controversial M&A stories. US President Donald Trump first threatened to ban the app entirely on security concerns before later changing his tune, saying he expects the Treasury to receive a portion of any sale fees should an American company purchase the app. Forbes weighs in, describing the situation as a ‘mugging’ – and the deal as a ‘forced sale’ that the country should be embarrassed by. The key question the article raises is whether the security concerns alluded to were truly the reason for Trump’s actions, or whether he was unable to bear a technological leader that emerged from a geopolitical rival.
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