Imagine a business valued at a third less than its assets, where management fees had rivalled shareholder returns. Surely this is the kind of laggard a top US activist should sort out? Not if the business in question — UK-listed Trian Investors 1 — is already run by top US activist Nelson Peltz. Instead, a small UK fund called Global Value is leading a group that wants to replace most of the board.
Irony comes fitted as standard on UK feeder funds such as Trian 1. US activists including Peltz, Dan Loeb and Bill Ackman set these up to garner foreign capital for forays against big corporates. But the feeder funds can be tempting targets themselves for smaller activists.
Shares often trade at a discount to net asset value, creating profit opportunities for investors if they can close the gap. Trian 1’s illiquid stock was recently quoted at 34 per cent less than its most recent published NAV of £393mn.
The second draw is that the City has a stricter corporate governance culture than Wall Street. Changes to fund rules deemed to benefit the investment manager, in this case Peltz’s business Trian, can provoke a strong backlash.
That happened last summer when Trian 1 decided to change its objectives. Instead of investing in a single activist action and paying back returns, it decided to become a permanent fund investing in multiple businesses. The switch was backed by just 52 per cent, including joint company broker Jefferies and Trian itself, against 48 per cent of shareholders.
Global Value, run by Miles Staude, has won the support of shareholders with 43.6 per cent of the stock of Trian 1.
There should also be plenty of intrigue around the Trian 1 vote, due to be held on August 5. Trian and Jefferies control about 41 per cent, so a slim margin of uncommitted minorities will decide the issue. Unless Trian offers concessions, they should consider backing Global Value.