The Sunday Times December 19, 2021 7BUSINESS
Via its private equity division, Elliott has
also been a long-term investor in unloved
companies such as book retailer Water-
stones. It bought bookstore chain Barnes
& Noble in the US and installed James
Daunt, the entrepreneur behind Water-
stones’ turnaround, as chief executive.
Shares in Glaxo have risen 30 per cent,
including dividends, since Elliott’s inter-
est was revealed in April. And shares in
cancer drugs specialist Clinigen are up by
40 per cent, including dividends, since
Elliott’s stake was disclosed in September
— boosted by a takeover bid.
But some in the City believe Elliott
takes credit for corporate transforma-
tions whether or not it is really responsi-
ble for them. It has trumpeted its involve-
ment in Premier Inn owner Whitbread,
which spun off the Costa Coffee chain for
a knockout £3.9 billion to Coca-Cola in- Sources close to Whitbread insist
the plan was laid before Elliott inter-
vened. Sources close to Elliott point out
that the activist had about 30 interactions
with Whitbread’s management and har-
ried it constantly until the demerger was
announced. At one point, Elliott even
made a £2.9 billion offer for Costa itself.
E
lliott was founded in 1977 by Paul
Singer, who still runs it; his son, Gor-
don, is head of the London office.
The firm has delivered annualised
returns of about 13 per cent since its
inception, according to Bloomberg.
Singer senior, 77, has argued that cre-
ating short-term value is not necessarily
at odds with pursuing value in the long
term. “All shareholders would benefit
from replacing this false distinction with
a new framework for evaluating activist
proposals,” he wrote in The Wall Street
Journal in 2017.
“Far too often, companies hide behind
‘long term’ as a way to justify prolonged
underperformance.”
Elliott has allegedly used brutal meth-
ods in the past to correct underperform-
ance. In 2016, when it was campaigning
to remove Klaus Kleinfeld as boss of the
US engineering company Arconic, Elliott
was accused of sending private investiga-
tors to knock on the doors of his neigh-
bours, asking about his personal life.
Elliott denied any involvement. Kleinfeld
was forced to resign the following year
after sending Elliott a letter hinting that
he might reveal embarrassing details
about Singer performing a rendition of
Singin’ in the Rain in a public fountain
during the 2006 World Cup in Germany.
Elliott honed its tactics in the politer
UK market by patiently laying siege to the
listed investment fund Alliance Trust,
beginning in 2015. It gradually ousted
chief executive Katherine Garrett-Cox
and chairwoman Karin Forseke.
Elliott sold out at a profit in 2017, hav-
ing persuaded Alliance Trust to buy back
its near-20 per cent stake.
Consultancy Alvarez & Marsal this
month predicted that 2022 would be a
“golden age” for activist investors. Advo-
cates point out that they are stirring pub-
lic debate in a market where the fading of
high-profile equity fund managers, plus
Mifid II restrictions on the distribution of
analyst research, have dampened con-
structive criticism of companies.
Julian Franks, a professor of finance at
London Business School, has sometimes
invited Elliott to address his students. He
said: “There is just not enough challeng-
ing engagement from [traditional equity]
owners. It’s healthy to encourage debate
between management and shareholders
— and if management wins that debate,
we shouldn’t criticise the shareholders
for raising the issue.”
That is undoubtedly true. The ques-
tion for Elliott is whether or not its
method of debate is cutting through. The
outcome of the Glaxo, SSE and Taylor
Wimpey campaigns could provide an
answer — and set the tone for its future
relationship with the City.Elliott
certainly
isn’t
winning
hearts
and mindsMarshall Wace, another SSE investor,
thought it was UK income funds reacting
to the dividend cut.
A few weeks later, Elliott hit SSE with a
searing ten-page public critique. The
hedge fund, which said it was a top-five
shareholder, accused SSE of depressing
its own value with an “inefficient con-
glomerate structure and confusing
equity story”. It called for the appoint-
ment of two new non-executives with
renewables experience. Elliott said its
changes could add £5 billion to SSE’s
£17 billion market capitalisation.
Activists are often tacitly welcomed by
fund managers because they do the dirty
work of shaking up complacent compa-
nies. In this case, the welcome appears to
have been distinctly lukewarm. While
sources close to Elliott claim that more
than 50 per cent of a sample of SSE’s
shareholders believe spinning off the
renewables business would be the best
way to maximise value, SSE is under-
stood to think there is almost no support
for it in practice. Last weekend, The Sun-
day Times reported that top SSE inves-
tors had described Elliott’s analysis as
“back of a fag packet” calculations and
dismissed the hedge fund’s proposals as
“value destructive”. On Tuesday, the
investor advisory body Pirc asked
whether Elliott had “lost its touch”.
For a hedge fund that trades partly on
its reputation for ruthlessly getting its
own way, this matters — and SSE is not an
isolated case. At the drugs giant Glaxo
Smith Kline, where Elliott has questioned
the plan of chief executive Dame Emma
Walmsley to lead a demerged pharma-
ceuticals business and urged the board to
appoint non-executives with specialist
experience, initial enthusiasm among
other investors seems to have given way
to ambivalence. While many think that
Elliott will eventually undermine Walms-
ley to the extent that she has to stand
down, few have been impressed by the
quality of its 17-page Glaxo analysis put
out in July. “Walmsley probably isn’t out
of the woods yet, but I don’t think Elliott
have helped themselves by overdoing it,”
said one investor.
Meanwhile, Elliott’s public criticism of
the housebuilder Taylor Wimpey —
issued this month before its analysts had
even met the management team — left
some onlookers scratching their heads.
The hedge fund said the board must run a
“transparent and thorough” process to
find a replacement for longstanding chief
executive Pete Redfern, who is retiring —
hardly a groundbreaking suggestion.
Elliott also called for the appointment of
two new directors.
These campaigns have prompted a
question in the City: is Elliott, the world’s
most feared activist, losing its bite? In a
climate where concerns over the environ-
ment, society and governance (ESG) are
higher on investors’ agendas, the fund
that fought a 14-year battle with the
Argentine government over debt repay-
ment may find the aggressive tactics of
the past are less feasible. And if boards no
longer feel quite the same jolt of shock
when it pops up on a share register, will
Elliott still be able to leverage its minority
shareholdings to get what it wants?
“Eighty per cent of what they do is
based on fear and reputation,” said one
chairman who has tangled with the fund.
“I didn’t find their analysis particularly
good... And as long as you have a board
that is clear on the strategy and is getting
on with executing, there’s no reason par-
ticularly to fear them.”
Fund manager Richard Buxton
at Jupiter Asset Management,
which is an investor in Glaxo, SSE
and Taylor Wimpey, said that
Elliott did not “seem to be win-
ning the hearts and minds of
other shareholders.” He asked:
“Are they spreading themselves
too thinly ... Would they
achieve better results if they
took bigger stakes in fewer sit-
uations? Possibly.”
Sources close to Elliott say
activist campaigns can take
years and the ones at Glaxo,
SSE and Taylor Wimpey are
all in their infancy. The fund
may spend months research-
ing a company and building a
stake, and often engages with
a board in private before going
public. At the mining giant BHP,
where it broke cover as an
investor in 2017, Elliott has
achieved its main goals,
including persuading
BHP to divest its US
petroleum business.Glaxo Smith
Kline’s Dame
Emma Walmsley
is among the
bosses to have
felt the hot
breath of Elliott,
which is led in
London by
Gordon SingerIs Elliott
losing its
bite?
The aggressive US activist is struggling to cut through
in its latest campaigns against blue-chips. Is it losing
its ability to strike fear into boards, asks Oliver Shah
ILLUSTRATION: JAMES COWENSSE’s performance since
Elliott’s stake revealed1,550
1,5001,6001,6501,7001,750SSE FTSE 1006,9007,0007,1 0 07, 2 0 07, 3 0 07,4 0 0AS OND
Source: Thomson Reuters EikonT
owards the end of July, as he
was preparing to go on holi-
day, Alistair Phillips-Davies
received a text message.
Nabeel Bhanji, a portfolio
manager at the US hedge fund
Elliott Management, intro-
duced himself as a share-
holder and asked if they could
speak. Phillips-Davies, chief
executive of Scottish energy group SSE,
had a brief call with Bhanji and agreed to
meet Elliott properly the next month.
When the two sides got together in
August, Elliott’s team opened by saying
SSE should use them as an ideas factory
and a sounding board. But then Bhanji
and his team clarified what they really
wanted. In a written thesis, they sug-
gested that SSE spin off its renewables
division — whose projects include the
3.6GW Dogger Bank wind farm in the
North Sea — from its older business,
which owns the main electricity grid in
the north of Scotland and local networks
in parts of England such as Oxfordshire.
Phillips-Davies, 54, knew he was under
pressure. SSE’s share price had been flat
in his eight-year tenure and underper-
formed the MSCI Europe Utilities index —
Elliott would later claim by 77 per cent.
He and the SSE board studied Elliott’s
proposal with help from their retained
advisers Credit Suisse and Morgan Stan-
ley, drafting in Rothschild too to give a
third opinion.
Their response in November angered
Elliott. SSE rejected the break-up plan,
saying it would cost £95 million in annual
“dis-synergies” plus £200 million in one-
off charges. It said it would instead sell
minority stakes in its electricity networks
and slash the dividend to fund a bigger
push into renewables. The shares fell by
4 per cent. Elliott saw that as the market
reacting to the spurning of its scheme —
although Sir Paul Marshall at hedge fundOLIVER
SHAH