Shareholder clout in takeover situations is on the wane. In an increasingly protectionist world, investors need to get used to it.
The Trump Administration’s intervention in the Broadcom-Qualcomm battle this month is one example. The Committee on Foreign Investment in the U.S., or CFIUS, argued that the $117 billion takeover of Qualcomm by Broadcom , a Singapore-based company known for cutting costs, could jeopardize U.S. investment in strategically important 5G technology. The Treasury Department is also coming up with plans to restrict Chinese investment in the U.S. more broadly.
Yet the trend is apparent elsewhere, too. Take the Netherlands, arguably the birthplace of modern capitalism. Its companies have some of the toughest takeover protections in the world—and if anything they are getting tougher.
Grocery giant Ahold-Delhaize , which runs a trans-Atlantic portfolio of supermarket chains including Food Lion, Stop & Shop and online pioneer Peapod, enjoys the classic Dutch defense of a “stichting,” or foundation. If necessary, the company can issue preferred stock to this foundation that dilutes the voting rights of other shareholders. The arrangement is explicitly designed to repel threats to the company’s “continuity, independence or identity,” according to a corporate-governance report filed last month.
Catherine Berjal of CIAM, a Paris-based activist investor with a small stake in Ahold-Delhaize, argues that the foundation is archaic and is pushing for a vote to close it in a shareholder meeting next month. She thinks the stock would rise at least 10% if the company could be seen as a target.
At Ahold-Delhaize, activist investors might focus on splitting the U.S. and European businesses, which have little in common, and selling the U.S. arm to Kroger , for example. Ahold’s valuation, like much of the industry’s, has suffered since Amazon announced its takeover of U.S. grocer Whole Foods last summer.
But Ms. Berjal may be pushing on a closing door. During the heyday of free-markets thinking in the mid-2000s, there was a move to loosen Dutch anti-takeover restrictions, says Ferdinand Mason, a lawyer at Jones Day. However, this backfired when ABN Amro, in response to a 2007 letter from London-based activist TCI Fund Management, was broken up and acquired by RBS, Banco Santander and Fortis in a debt-laden megadeal. Barely a year later, RBS and Fortis required substantial state bailouts.
Since then the Dutch pendulum has swung back toward protecting companies, says Mr. Mason. When the remains of Fortis were refloated as ABN Amro in late 2015, they were protected by a particularly assertive defense structure involving a foundation owning the stock.
Corporate takeover defenses are anything but archaic. Activists need to update their strategies.
Write to Stephen Wilmot at stephen.wilmot@wsj.com
Appeared in the April 2, 2018, print edition as 'Activists and the Rising Barriers to Global Deal-Making.'