FMG Corporate Governance Project

1
FMG Corporate Governance Project

• Hedge Fund Activism
• David Kershaw

2
UK Hedge Fund Activism

• From institutional shareholder to hedge fund
  activism
• High powered incentives
• Less conflicted
• The Project assessing the nature and impact of
  hedge fund shareholder activism in the UK
• Benign - share value driven
• Abusive non-share value driven
• The problem / solution
• What is the impact of activism where the active
  partys voting power may exceed / not be aligned
  with its economic interest?

3
Available Tools

• Long equity position
• Share borrowing
• What rights does a borrowed share give you?
• The extent of share borrowing
• Empty voting
• Voting power decoupled from economic interest
• Hidden ownership
• Undisclosed voting power and economic interests

4
Abusive Activism

• The classic example King Pharmaceuticals and
  Mylan

Mylan
Merger proposal
King Phara
Perry Corp
Perry Corp 9
Counterparty
Hedge Downside
5
Empty Voting Research Questions

• Is there scope for abusive voting in the UK and
  it what context does it take place?
• What is the extent of abusive empty voting in UK
  listed companies?

6
Formal Scope for Abusive Voting in the UK

• Perry / Mylan - no statutory merger / limited use
  of schemes of arrangement
• Takeover bids
• Class 1 takeover bids
• Exploiting creditor / shareholder conflict
• Takeover bids
• Restructurings

7
Implications

• Activity dependent
• Is disclosure an answer?
• Voting restrictions
• Specific Non-short selling borrowers cant vote
• General mandatory shareholder decision rights
• Post-bid defence prohibition an opt out?

8
Research Problems

• Data and transparency?
• Case study alternatives
• Identifying case studies
• Access to detailed information
• Structured interviews
• Will hedge funds talk? From benign to abusive
• From Relationship bankers to the companies

9
Benign Activism

• Unconflicted activism
• British Land
• Empty voting alleviating the collective action
  problem
• Non-aligned but value driven
• A catalyst
• Research objectives
• Types of activism activity where there is value
• Compare with institutional shareholder activity
• Documenting activist approaches
• Economic assessment of its effectiveness
• Data availability