An Autumn of Activism Awaits European Luxury, Consumer Giants
LONDON — “Nothing happens, and nothing happens, and then everything happens,” wrote Fay Weldon. She wasn’t referring to the world of finance, but those words capture the surge in corporate activism that’s set to intensify this fall at two of Europe’s most high-profile groups.
Europe’s luxury and consumer companies don’t tend to attract much activist attention, but a perfect storm of geopolitical tensions, soaring inflation and supply chain challenges post-pandemic have rattled stock markets, and put downward pressure on shares.
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After so many years of consistent growth, the softening markets have forced some big, vocal hedge fund honchos to reevaluate their portfolios, and lobby for change — to boards, management and strategies — aimed at extracting maximum value, and boosting valuations.
In some cases founder-owners are behaving like activists themselves, shaking up their companies as they retool strategies and seek growth.
Earlier this month, the Della Valle family revealed plans to delist Tod’s Group from the Italian Stock Exchange, saying the constant drumbeat of quarterly results reporting was hampering their ability to pursue the company’s medium- and long-term goals.
There could be other reasons: Tod’s shares have fallen nearly 30 percent over the past year to 40.50 euros, so the price tag is attractive. By taking Tod’s private again, the family, which already owns a majority stake, will be able to operate away from the glare of the public markets.
One luxury investor described the current environment this way: “When share prices come down, it’s time to shake things up.”
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Earlier this year, Nelson Peltz of Trian Fund Management — whose name has been known to strike fear into the hearts of FMCG managers — has argued his way onto the board of Unilever, reprising a similar move he made at Procter & Gamble a few years ago.
Peltz, who joined Unilever in late July as a non-executive director and a member of the compensation committee, is respected by fellow investors and is known as a man of action. His strategies include consolidation, sales and efficiencies, and he’s known as a hands-on operator.
Last January, when news broke of Trian’s $1.64 billion investment in Unilever, the share price spiked 6 percent, with financial analysts applauding the move. Those same analysts had watched Peltz improve the fortunes at P&G, where he served on the board from 2018 until 2021, working closely with the chief executive officer and management.
Unilever CEO Alan Jope said that while it’s still early days, Peltz will be a force for change.
“I think he wants what we all want, which is to see continued, high-quality, sustained, consistent growth from the company, and to unlock the real value of this great company,” Jope said. “I’ve had many conversations with him in the last few months. He brings enormous experience on the consumer products industry, and is making a very constructive contribution as a board member.”
Peltz’s appointment follows an ugly episode that saw Unilever, parent of brands ranging from Dove to Ben & Jerry’s, fail in its bid to purchase the consumer arm of GlaxoSmithKline for 50 billion pounds. That proposed deal sent Unilever’s share price plummeting, and spurred a company-wide reorganization that took effect earlier this summer.
There is speculation that Peltz could make sweeping changes at Unilever, blasting through the bureaucracy, potentially selling the food division and putting a greater focus on the fast-growing personal care, prestige beauty and wellness categories.
The same month that Peltz joined the Unilever board, Bluebell Capital Partners revealed its plans to shake up Compagnie Financière Richemont.
The activist investor, which has around 1 million “A” shares in the company, wants to install luxury jewelry expert, and investor, Francesco Trapani on Richemont’s board.
It is also lobbying for changes to corporate governance; a strategic focus on hard luxury and, potentially, a name change that would feature the luxury giant’s flagship brand, Cartier. Bluebell believes that Richemont’s stock could double in value in two to three years’ time.
Founded in 2019 by Trapani and the former investment bankers Marco Taricco and Giuseppe Bivona, Bluebell had already turned up the heat on Hugo Boss in 2020, helping to eject its CEO Mark Langer.
In the span of a few years, Bluebell has also invested in, and demanded changes at, companies including Danone, GlaxoSmithKline and Lufthansa.
Richemont has confirmed that Bluebell’s initial request of more board representation for the holders of Richemont’s “A” shares, which are publicly listed on the SIX Swiss Exchange, will be submitted to shareholders at the annual general meeting on Sept. 7.
It is urging shareholders to vote against Bluebell’s proposal to install Trapani to the board as a representative of the “A” shareholders, and proposing its own candidate instead: the board member and independent director Wendy Luhabe.
Richemont has described Trapani as an “inappropriate” candidate due to his long history with rival LVMH Moët Hennessy Louis Vuitton.
This latest surge of activism in European luxury and consumer goods is the result of more than just macroeconomic pressures on share prices, say industry watchers.
Courtesy of Unilever/LIAM ARTHUR
One reason is that times are changing, and boards need to keep up.
Josh Black, editor in chief of Activist Insight, which provides research and data on activist investing and corporate governance for the financial community, said it’s challenging to recruit an experienced board that ticks all the boxes.
“You have so many things to consider. You need supply chain experts, market dynamic experts; M&A experts. It’s hard to get the full package sometimes. So a lot of activists think it’s the right time to put a certain kind of expertise on the board. Or maybe it’s a case of the activists thinking that the CEO needs more support,” or that they shouldn’t be in the job anymore, Black said.
Indeed, after Unilever’s botched attempt to buy GSK’s consumer arm, which has since been floated on the London Stock Exchange, the British financial press blasted Unilever’s chairman, Nils Andersen, saying he should have done more to engage the top shareholders and control the fallout from the failed bid.
Black also believes the activism that luxury and consumer goods companies are seeing now has been pent-up due to the pandemic.
“Now that the dust has settled a little bit and travel is more feasible, activists can actually meet their fellow directors and lobby them in person, rather than on Zoom,” he said, adding that post-pandemic problems are also arousing activists’ interests.
“A lot of companies have run into difficulties with supply chain, or a failed acquisition, or market sentiment weighing on the stock price. So, there’s an attractive entry point for a lot of activist investors who’ve been kind of sitting around waiting for a good opportunity,” Black added.
He believes that the luxury business is particularly vulnerable to activist activity right now.
“People have been saying the European luxury sector has been ripe for activism for quite a long time. The sector is currently less infiltrated by activists, and there is probably less-than-ideal governance,” he added.
For years, the luxury business has been dominated by big, influential personalities — Bernard Arnault, François Pinault, Francois-Henri Pinault, Johann Rupert and Patrizio Bertelli, to name a few. Even if their companies are publicly listed, they still control a large number of shares and hold powerful voting rights.
They are ultimately the ones calling the shots, so there’s been little room for activist voices.
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That’s why industry observers believe that Bluebell will have a hard time effecting change at Richemont, where founder and chairman Johann Rupert controls 10 percent of the company’s capital and 51 percent of its voting rights.
Although a management team runs Richemont, Rupert remains deeply involved in, and committed to, the business, which he has personally shaped over the years.
Jefferies pointed out that Bluebell’s stake in Richemont is worth 105 million Swiss francs while Richemont itself is worth 55 billion Swiss francs.
“Bluebell alone does not have a meaningful stake and is unlikely to exert significant pressure unless other shareholders also campaign for changes,” wrote Jefferies’ Kathryn Parker and Flavio Cereda in July.
Institutional Shareholder Services Inc., an adviser to companies and shareholders on corporate governance and investing, has given the thumbs down to Trapani, telling Richemont shareholders that he would not serve their interests.
Luca Solca of Bernstein said Bluebell’s request for board representation “makes sense and is intended to protect the rights of the holders of the publicly traded shares. Whether this will succeed or not is all to be seen. The Ruperts have the majority of the voting rights, so they will decide.”
Rupert and his fellow “B” shareholders also have a right to veto an elected “A” representative “if they have a valid reason to do so,” according to Richemont.
Courtesy of Cartier
Black said the outcome of the Richemont vote will depend on “the motivation of the insiders. The company is theirs to run how they see fit. In some situations, they want the stock price to go up as much as anyone else, and they might be willing to have someone [new] on the board or undertake some of the things that an activist would suggest, in order to raise their own fortune,” he said.
Bluebell believes Trapani would be “an invaluable asset to Richemont, and would significantly contribute to Richemont’s future growth and success.”
It argues that Trapani no longer has any ties to LVMH, and is urging Richemont shareholders to vote for change.
Trapani certainly knows a thing or two about corporate activism.
The former Bulgari CEO and LVMH executive forced his way onto the board of Tiffany & Co. in March 2017 as part of a deal with another activist investment firm, Jana Partners LLC.
He was vocal from the get-go, and was instrumental in picking a new Tiffany CEO, Alessandro Bogliolo. Tiffany & Co. was later sold to LVMH in a blockbuster deal, and Trapani left the board to pursue other interests.
Trapani also has a long history with LVMH, which purchased his family’s company, Bulgari, for roughly $5.2 billion. That deal put Trapani in charge of LVMH’s watch and jewelry activities, where he served as chairman and CEO. It also made Trapani and his extended family very rich.
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At Hugo Boss, Bluebell worked quickly, moving in shortly before COVID-19 spread through Europe. The investor took a minority, undisclosed stake in the company and sent a letter to the board, urging an overhaul of the firm’s strategy, and a refocus on fundamentals such as products, flagships and communication.
Trapani himself was outspoken about the changes that needed to be made, and a few months later Mark Langer, the CEO who’d spent nearly two decades at the brand, resigned.
One luxury investor who declined to be named said Bluebell’s wish list for Richemont “makes a ton of sense, but I wonder what the time frame is and where, at Richemont, you can unlock value. Regarding any board changes, the decision will come down to Rupert, and whether he wants Trapani — another silverback, male luxury CEO — on the board. He might want to pursue other sorts of changes — with ESG and DEI.”
Rupert has been making swift advances on the ESG and DEI fronts, one reason why he wants Wendy Luhabe instead of Trapani.
A year ago, Richemont named Jasmine Whitbread, an executive with extensive expertise on ESG issues, to the board. In 2020, the luxury group brought Luhabe, a social entrepreneur and economic activist who has been widely recognized for her contribution to the economic empowerment of women in South Africa, onto the board.
Earlier this year, at management level, the company hired Dr. Bérangère Ruchat as its first chief sustainability officer as it pursues its punchy environmental goals.
On Aug. 24, Rupert inked a deal to sell Yoox Net-a-porter Group to Farfetch, a long-awaited development that was well-received by the market as analysts — and investors — had been demanding it for years.
The surge in activist pressure isn’t limited to Europe. Consumer goods businesses in the U.S. are feeling the heat, too, and with inflation and interest rates rising, and a recession looming, the temperature will most likely increase.
The Wisconsin-based Kohl’s is one company that’s been hammered by activist investors, and is working toward creating greater value for shareholders.
Activist pressure earlier this year sparked a strategic review and triggered offers to buy the company from The Franchise Group, as well as Sycamore Partners, Simon Property Group, the Hudson’s Bay Co., Leonard Green Associates and others.
At various times during the year, preliminary offers were in the $60 to $70 a share range, but the stock market’s volatility, the changing retail environment, and, as some believe, Kohl’s financial performance brought the price down.
While a sale could still be on the cards, Kohl’s is now charging ahead with its own value-creation strategies. Whether or not that will satisfy Kohl’s very vocal activists remains a question mark.
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