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Briefing Materials
S H A R E H O L D E R A C T I V I S M I N E U R O P E
S E P T E M B E R 2 0 1 7C O N F I D E N T I A L
This document has been prepared by Lazard Frères (“Lazard”) on the basis of information publicly available, disclosed by the relevant company(ies) or by third parties, none of which has
been independently verified nor audited by Lazard
This document has been prepared solely as a basis for preliminary discussions of the feasibility of certain potential transactions mentioned herein. Any final decision regarding the
opportunity or the feasibility of the transactions mentioned herein will require further investigations in particular as regards the legal, accounting, financial or tax aspects
This document reflects prevailing economic, monetary, market or other conditions as of September 2017 and may require adjustments should such conditions change
In preparing this document, Lazard has relied upon and assumed the accuracy and completeness of all available information. Therefore, neither Lazard nor any of its representatives shall
incur any liability as to the accuracy, relevance or completeness of the information contained herein
This document is for the exclusive use and benefit of Lazard’s client; this document, its mere existence and the information mentioned herein shall be kept strictly confidential and not be
disclosed to, or used by, any other person without Lazard express consent
Anyone to whom this document is disclosed in connection with its professional obligations or otherwise shall keep it strictly confidential in accordance with the terms set out above
This presentation shall be viewed solely in conjunction with an oral briefing provided by Lazard
Disclaimer
B R I E F I N G M A T E R I A L SC O N F I D E N T I A L
Table of Contents
B R I E F I N G M A T E R I A L SC O N F I D E N T I A L
I WHAT IS SHAREHOLDER ACTIVISM? 1
II EUROPEAN SHAREHOLDER ACTIVISM BY THE NUMBERS 6
APPENDIX
L A Z A R D S H A R E H O L D E R
A D V I S O R Y
C O N F I D E N T I A L
I What is Shareholder Activism?
B R I E F I N G M A T E R I A L S
Who Are the Main Players in Europe?
I W H A T I S S H A R E H O L D E R A C T I V I S M ?B R I E F I N G M A T E R I A L S
EUROPEAN SHAREHOLDER ACTIVISM LANDSCAPE (SELECTED PLAYERS)
NEW EUROPEAN
ACTIVISTS
Inflow of new money including from long-standing activists
Specific geographic coverage
Combine methods of US activist hedge funds with Europe-wide and/or
local specifics
LONGSTANDING
EUROPEAN
ACTIVISTS
Long-standing track record
Developed proven expertise towards the European corporate
landscape
U.S. ACTIVISTS
Opportunistic approach to Europe
« Fittest » funds expected to increase focus on Europe
Presence in Europe also depends on performance in the U.S.
VOCAL
INSTITUTIONAL
INVESTORS
Focus on private engagement to drive change but may be vocal as a
last resort
Under pressure to be more active due to industry evolution (rise of
passive management and consolidation in active management)
1
Index Funds Rise of index funds creating new class of power brokers deploying
“permanent capital”
Record levels of ownership concentration
Passive assets under management reached €8tn in 2017
Significant resources allocated to proxy voting, corporate governance and
issuer engagement
Activist Hedge Funds Bifurcation of activist playing field into group of influential, established activists
and ever-expanding group of up-and-coming players
Heightened level of sophistication and sector and market-cap specialization
No standard activist playbook
Current Dynamics in Shareholder Landscape
I W H A T I S S H A R E H O L D E R A C T I V I S M ?B R I E F I N G M A T E R I A L S
Key Takeaways
Crucial to be attuned to areas of
vulnerability and current shareholder
sentiment at all times
IR must be viewed as strategic function to
address increasingly complex shareholder
environment
Role of Director involvement in shareholder
engagement continues to evolve and
expand
Proactive Board refreshment and attention
to composition are vital elements of being
prepared
Active Managers Battle for “alpha” intensifying following successive years of fund outflows and
pressure from low-cost passive strategies
Increasing openness to behaving in activist-like ways towards portfolio
companies
2
What Has Changed? Increased Focus on Europe
What Is Driving Greater European Activism?
Advent of major European activists and emergence of new players
Activists looking beyond “low hanging fruit” and contemplating large-cap and blue-chip targets
Activists have become more mainstream
Supportive market conditions
B R I E F I N G M A T E R I A L S I W H A T I S S H A R E H O L D E R A C T I V I S M ?
Evolution of investor landscape towardsincreased institutional ownership and rise of index funds
Europe is 10 years behind the US in the degree of shareholder
activism and in how directors respond. Demand for returns to meet
pension obligations will make shareholders inherently more active in
Europe.
BILL ACKMAN (PERSHING SQUARE)
Sclerotic companies abound in Europe […]
I believe demergers and the destruction of European conglomerates
are the next major trend in the M&A market […]
We are probably in a period where we will have more activism in
Europe. Frankly, in an environment where passive index funds have
taken such big market share, it is welcome for capitalism.
CHRISTER GARDELL (CEVIAN)
We are seeing more opportunities in Europe because of strong and
improving economic data, a trend that will likely continue now that the
French elections have passed without incident.
DAN LOEB (THIRD POINT)
3
Development of an Activist Campaign
I W H A T I S S H A R E H O L D E R A C T I V I S M ?B R I E F I N G M A T E R I A L S
Approach
In Europe, absent a catalyst, activists have typically found more success in waging a "constructivist" campaign working
alongside management as opposed to taking a more confrontational position
Initial approach is therefore likely to be private, and could be aimed at gathering additional information ahead of seeking
audience with management to outline thesis
However, this does not preclude an activist from becoming more aggressive throughout the campaign
Building Positions
Increasingly active use of derivatives and options to “hide tracks” and avoid triggering disclosure obligations or detection by
stock surveillance services
Use of derivatives may also shield hedge funds from “stamp tax” obligations applicable to foreign purchasers of equities
Disclosure of position likely to be a calculated tactic to escalate discussions
Recent rise in creative fundraising through use of special purpose and single purpose vehicles (e.g., Third Point at Nestlé and
Corvex at Clariant)
Escalation
Activist may privately engage with influential shareholders to garner support for investment thesis and pressure management
Public agitation may result in the release of a “White Paper’ or the formation of a “Wolf Pack”
Increasing hostility may result in the call for special meeting to remove directors and senior management as well as the
nomination of dissident slate and submission of shareholder proposals
Range of public escalation tactics has broadened with new media becoming an increasingly common part of campaign
strategy to complement traditional financial media and institutional shareholder outreach
4
Index Funds: The New Power Brokers
I W H A T I S S H A R E H O L D E R A C T I V I S M ?
With their ownership of public companies significant and expanding, index funds are taking their investment stewardship efforts increasingly
seriously, including by being assertive in certain situations
Source: Shareholder websites, public information
2014 2016
14 31
12 20
4 10
B R I E F I N G M A T E R I A L S
Governance groups have generally doubled in size over
the last three years
Teams have added sophistication and bandwidth to
support an enhanced role in the investor community
driven by their dominant ownership position
The rise of sophisticated in-house voting processes has
been accompanied by declining role of proxy advisors
(ISS and Glass Lewis)
Proxy advisor recommendations are no longer
viewed as determinative, but are instead treated like
a single data point to be considered as part of
bespoke voting processes
However, smaller funds without adequate resources
continue to rely on proxy advisor recommendations
5
L A Z A R D S H A R E H O L D E R
A D V I S O R Y
C O N F I D E N T I A L
II European Shareholder Activism by the Numbers
B R I E F I N G M A T E R I A L S
Market cap. breakdown of targets Total activist campaigns in Europe
Key campaign objectivesIndustry breakdown of targets
32
1316
8
40
1316 1820
813
7
€100m-€2bn €2bn-€5bn €5bn-€20bn €20bn+
2015 2016 1H 2017# of companies
European Trends in Activist Campaigns Launched and Companies Targeted
I I E U R O P E A N S H A R E H O L D E R A C T I V I S M B Y T H E N U M B E R SB R I E F I N G M A T E R I A L S
European activist campaigns are increasing since 2015. Most popular campaign objectives were Board representation, M&A, capital allocation and
strategy
74
92
48
2015 2016 1H 2017
# of activist campaigns
22%
43%35%
7% 9%13%
55%
29%
10% 9%2%
54%
29%
5%10%
Activist Short Boardrepresentation/
governancechanges
M&A Capital structure/allocation
Strategy
2015 2016 1H 2017% of campaigns
15%18% 20%
46% 19%23%
12%46%
85
74
15
710
5 4 4
8 710
8
18
7
14
4 5 66 75
7 8
1
5 41
4
Con
sum
er
Ret
ail
Fin
anci
alIn
stitu
tions PE
I
Indu
stria
ls
Hea
lthca
re
Tec
hnol
ogy
Tel
ecom
Rea
l Est
ate
Med
ia
2015 2016 1H 2017
Companies targeted
42% 17% 27% 14%
Source: Activist Insight and FactSet
Note: All data is for activist campaigns targeting Europe-listed companies with market cap. greater than €100 million at time of campaign announcement
6
Success rate of campaigns for Board seats
2028
10
6
12
6
26
40
16
2015 2016 1H 2017
Board seats won
Manner of Board seats obtainedNumber of Board seats won
European Trends in Activist Board Representation
I I E U R O P E A N S H A R E H O L D E R A C T I V I S M B Y T H E N U M B E R SB R I E F I N G M A T E R I A L S
Activists have won more Board seats in 2016 vs 2015, through a higher number of campaigns
96
14
16
6 51
7
1 2
Oneseat granted
Twoseats granted
Threeseats granted
Four +seats granted
2015 2016 1H 2017
# of Companies
57%
21% 18%
17 189
25 29
15
4247
24
2015 2016 1H 2017
# of Board seats won
4%
Activist employees
as % of total40% 38% 77% 70%
# of Board campaigns
20%5%30%45%
20% 21%
4 61
1622
9
20
28
10
2015 2016 1H 2017
# of Board representation campaigns
63%38%
78%
10%
10% 20%
Source: Activist Insight and FactSet
Note: All data is for activist campaigns targeting Europe-listed companies with market cap. greater than €100 million at time of campaign announcement
Successful Board campaigns
Success rate
as % of total
Settlements
as % of total
Campaigns settled
Activist employees appointed
7
Top 5 European regions targeted (2015-1H17)
European Shareholder Activism League Tables
UK – 61 Campaigns (17,31,13)
FRANCE – 28 Campaigns (10,11,7)
NORDICS – 25 Campaigns (10,9,6)
GERMANY– 23 Campaigns (5,13,5)
1
3
4
5
2 ITALY – 29 Campaigns (8,11,10)
B R I E F I N G M A T E R I A L S I I E U R O P E A N S H A R E H O L D E R A C T I V I S M B Y T H E N U M B E R S
Source: Activist Insight, FactSet and public filings
Note: All data is for activist campaigns targeting Europe-listed companies with market cap. greater than €100 million at time of campaign announcement
Top 10 Activist Investors – Most campaigns initiated (2015-1H17)
# of Campaigns Avg. Mkt Cap. of Targets
€3.2bn
€8.6bn
€24.6bn
€1.2bn
€1.4bn
€1.3bn
€30.0bn+
€8.5bn
€59.0bn
€27.5bn
5
7
1
2
1
2
2
1
9
7
2
2
2
1
3
1
1
3
6
3
4
1
2
1
1
20
17
7
5
5
4
3
3
3
3
2015 2016 H1 2017
Denmark, Norway, Sweden and Finland together are a major playing field for activists in Europe
8
B R I E F I N G M A T E R I A L S I I E U R O P E A N S H A R E H O L D E R A C T I V I S M B Y T H E N U M B E R S
Source: Activist Insight and FactSet
Note: Campaigns refer to public actions by shareholders, towards a holding, to influence its strategy, governance, capital structure or reporting
Stakes and market capitalizations are as of start date of activist campaign
Selected Examples of Recent Nordic Countries Campaigns
5.0% DKK72bn
Operations / Board Representation
In 2013, Cevian demanded that
Danske Bank resolve the issues in
its investment strategy that was
driving its share price down
Cevian obtained a seat on the
board after it doubled its stake in
Danske Bank
5.0% DKK5.8bn
Oppose M&A transaction
In 2011, Elliott led the opposition to
Dupont’s original offer to acquire
Danisco
After reducing the acceptance
threshold and increasing the bid
price, the merger went through
5.6% €23.3bn
Operations / Board Representation
In 2016, Cevian obtained a seat on
Ericsson’s nomination committee
after publicly supporting the CEO’s
cost-cutting plan
Ericsson’s Chairman resigned
10.1% €700m
Governance / Special Dividend
In 2017, Elliott demanded a special
dividend payment and the creation
of a clearance committee
However, none of the proposals put
forward by Elliott gathered the
necessary votes at the AGM
5.0% €31.0bn
Divest Assets / Board
Representation
Volvo spun-off its IT services
division in 2016
Cevian gained a board seat in 2014
In 2017, Cevian called for the split
of Volvo into three distinct entities
n.a. €17.4bn
Push for merger
In 2016, Cevian said it would not
invest in Telia as it considered it
substantially overvalued
It suggested Telia should merge
with Telenor to form a major actor in
the telecommunications sector
7.5% €2.4bn
Oppose M&A transaction / Special
Dividend
In 2015, Elliott increased its stake to
10% and tried to push Canon to
submit a higher bid for Axis
Elliott managed to pressure Axis
into paying a special dividend twice
Capital return
In 2013, Third Point acquired a
stake in Nokia after it announced
the sale of its devices and services
division to Microsoft
In 2014, Third Point convinced
Nokia to implement a $1.7bn share
buyback
n.a. €17.1bn
Prominent activists have initiated campaigns in the region…
10.1% €980m
Special Dividend
In 2016, Elliott demanded the
payment of a minority dividend
The Board of IFS deemed the
demand justifiable and the
shareholders resolved to implement
the dividend at the AGM
9
B R I E F I N G M A T E R I A L S I I E U R O P E A N S H A R E H O L D E R A C T I V I S M B Y T H E N U M B E R S
Source: Activist Insight and FactSet
Note: Campaigns refer to public actions by shareholders, towards a holding, to influence its strategy, governance, capital structure or reporting
Stakes and market capitalizations are as of start date of activist campaign
Selected Examples of Recent Nordic Countries Campaigns (cont’d)
30.0% €1.7bn
Board Representation / Governance
In 2015, Makuria, Teleios and
Constructive Capital joined forces to
overhaul Kongsberg’s board
After the company added a director
put forward by the activists and
changed its CEO, it gained their
support to improve the results
n.a. €13m
Strategy / Push for sale
In 2013, Nanes Balkany heavily
criticized Petrogrand’s management
and called for a strategy review
In 2014, Balkany supported a
takeover by Shelton after the group
revised its initial offer
Board Representation
In 2015, following an agreement
with Cramo, Zeres acquired a
10.6% stake in the company and
gained two seats at the nomination
and compensation committee
10.6% €630m
…However, the activism of smaller and more discrete funds is also on the rise
7.0% €90m
Board Representation
In 2016, Accendo increased its
stake in Hexatronic to 13.7% and
became its largest shareholder
It translated a few days later into
Accendo obtaining a board and
nomination committee seat
11.6% €120m
Board Representation
Accendo Capital first invested in
Doro in 2009
In 2015, Accendo increased its
stake which resulted in the gain of a
board seat as well as a seat at the
nomination committee
10.5% €120m
Board Representation
In 2015, Zeres built a sizable stake
in Eltel after the company
completed its IPO
Subsequently, Zeres gained a seat
on Eltel’s nomination committee
and two board seats
n.a. €310m
Governance
In 2017, AB Trovata, claiming an
entity disseminated negative
information about the company,
requested the board to sue for
damages
The proposal was rejected at the
company’s AGM
AB Trovata
n.a. €1.8bn
Board Representation
In 2014, Noreco failed to convince
shareholders to allow it to convert
its debt to equity, forcing it to put
forward a modified proposal
In 2015, Nanes Balkany gained a
board seat at Noreco
3.1% €80m
Board Representation / Governance
In 2014, having built a stake in
Panoro, Julien Balkany joined the
board after accepting an offer to
avoid a proxy contest
In 2015, Julien Balkany was
appointed chairman of the board
Nanes Balkany
Nanes Balkany
Nanes Balkany
10
L A Z A R D S H A R E H O L D E R
A D V I S O R Y
C O N F I D E N T I A L
Appendix
B R I E F I N G M A T E R I A L S
Lazard’s Shareholder Advisory Team in Europe
François F. BrentanoManaging DirectorEuropean General Counsel
Core Team
Gilles MentréManaging DirectorEuropean Head of Shareholder Advisory 15 years of experience in the Public
sector, finance and diplomacy
Former Deputy Head of Staff of
French Minister of Economy and
Finance, François Baroin
Antonin DeslandesAssociateShareholder Advisory 5 years of experience
as a capital markets /
corporate lawyer
Formerly an attorney
at White & Case
Ivan GavagnachAssociateShareholder Advisory 3 years of
experience in
investment banking
Specializes in
equity advisory
Adrien RamesanAnalystShareholder Advisory 2 years of
experience in
investment banking
Jad FaresAnalystShareholder Advisory Joined Lazard in
2017
Country Support
Pablo ChichonVice PresidentShareholder Advisory
Pedro PasquinManaging DirectorHead of Madrid Office
Charlie ForemanManaging DirectorEquity Capital Markets
Marco SamajaManaging DirectorHead of Milan Office
Rolf BachmanManaging DirectorHead of Zurich Office
Gustaf SlettengrenManaging DirectorHead of Nordics
Jacques DeegeDirectorLazard Legal
Hubert ZhangVice PresidentLazard Legal
Eric FellhauerManaging DirectorHead of Frankfurt Office
John KynigopoulosSenior Advisor
B R I E F I N G M A T E R I A L S A P P E N D I X
Nick FowlerManaging DirectorEquity Capital Markets
11
What Lazard Shareholder Advisory Does for its Clients?
A P P E N D I XB R I E F I N G M A T E R I A L S
12
CORPORATE PREPAREDNESS “LIVE” SITUATIONS
Understand vulnerabilities, identify potential attack angles
(White Paper simulation) and prepare rebuttals / response strategyFormulate engagement strategy with activist
and tactics for potential escalation
Shareholder engagement / IR policy
Advise on negotiations and potential settlement
Ongoing advice on shareholder engagement, investor relations
and corporate governance matters
Communication strategy
Legal / Governance
Organize internal and external core team
Provide insight on activist’s profile, investment approach
and precedents / previous campaigns
In-depth review (operations, performance, governance, etc.) and rebuttal
strategy (in response to formulated criticisms / potential White Paper)
Identify and assess strategic options
Shareholding structure assessment
Communication strategy
Organize internal and external core team
18