Shareholder activism will increase in Switzerland in 2023 and 2024 – The Onliner

Unlike most other countries, Switzerland has seen a surge in activist campaigns in the first nine months of 2022. This is partly due to activist funds such as Petrus Advisers and Third Point Partners either entering or re-entering the Swiss market. The report’s authors have identified 12 public companies with a high likelihood of becoming the target of activist attacks between November 2022 and May 2024, up from 11 companies in the previous report, which was published in April 2022.

The number of activist funds in Europe is steadily increasing
The report has identified 144 companies across the European market that are likely to be vulnerable to activist attacks by mid-2024. In the last report, there were still 155 companies. This decline can be explained by a combination of inflation, recession, and the energy and geopolitical crises. However, the authors of the study assume that shareholder activism will increase again as soon as the economic uncertainties have subsided. This will be due in part to the ever-increasing number of funds employing activist strategies in Europe. A&M currently identifies 96 such funds, up from 93 in 2021 and 89 in 2020. Activist funds and their tactics are gaining acceptance among shareholders in European companies as their approach is perceived as constructive and committed to sustainability. These new activist investors are mostly from Europe, primarily the UK, which means a decline in activist actors from the US. The authors also note that a small but growing number of Asia-Pacific based funds are targeting new European companies.

Companies are increasingly under pressure to increase the return on invested capital. If they fail to do so, they could be required to divest underperforming businesses and/or return capital to shareholders.

“A&M Activist Alert” von Alvarez & Marsal

The new Swiss company law accommodates activists
On average, companies listed in Switzerland have performed well relative to their international peers in terms of return on capital employed, asset turnover and earnings per share. But they’ve been less successful in maximizing shareholder returns and increasing operating and cash flow margins. These areas are likely to be the focus of interest for activist investors. The reform of Swiss company law, which came into force on January 1, 2023, will also strengthen shareholder rights and make Switzerland a more attractive market for activists. Changes under the new law include lowering the threshold for convening a shareholders’ meeting from 10% to 5% of voting rights, lowering the quorum required to include an agenda item at the shareholders’ meeting, strengthening information rights and introducing the requirement shareholder approval for a delisting.

Environmental and social policy campaigns are not decreasing
Campaigns focusing on environmental and social issues are expected to increase by 22% and 14% respectively by the end of 2022 compared to the previous year. An example of this is Bluebell Capital Partners’ campaign to persuade Glencore to divest its lignite assets. A&M predicts that the number of environmental and social policy campaigns will continue to rise in 2023 and 2024.

European consumer goods and industrial companies are in focus
In Switzerland, the campaigns will primarily focus on industrial, technology, consumer goods, healthcare and materials companies, in that order. Across the European market, consumer goods companies are expected to remain attractive and new industrial companies are expected to come under pressure as the latter have seen their operations decline and are also facing rising costs of capital. Elsewhere, some technology and healthcare companies may also come under pressure to cut costs and improve performance. Companies are increasingly under pressure to increase the return on invested capital. If they fail to do so, they could be required to divest underperforming businesses and/or return capital to shareholders. However, the higher borrowing costs are also a challenge for interested buyers.

Alvarez & Marsal’s detailed “A&M Activist Alert” can be found here.

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