We haven’t seen too many examples of this of late – the faceless (probably British, definitely long-only) institutional fund manager applying very public pressure on a major listed company board. Consider this report regarding Rio Tinto from Reuters:
Major investors in Rio Tinto have demanded afresh that the mining giant scrap a deal with Chinalco and actively pursue a new capital raising or a sale of assets to rival BHP Billiton The sustained objections to the proposed transaction come despite a lengthy charm offensive from new chairman Jan du Plessis, who is meeting top shareholders again this week.
“The world has completely changed since the Chinalco deal. This was a bad deal few months ago and it’s a bad deal now,” said one top 25 investor who is due to meet the chairman over the next couple of days. Another large investor said: “We are going to encourage the Rio chairman to look at other alternatives such as capital raising and frankly, expedite that process as quickly as possible.”
Legal & General, M&G, Insight We won’t try and guess which “Top 25″ investor has been blabbing away behind the cloak of anonymity. But why does it have to be like this?
It is no secret that Rio’s assets and convertible debt deal with Chinalco has looked rather less appetising from a shareholder’s point of view now that Rio’s share price has been nudging £30, than in February when the price plumbed £16. Indeed, part of the convertible debt component is not too far from being in the money for the Chinese.
But tearing up an agreement hatched four months ago with a country that also happens to be one of your leading customers is no doubt tricky. It would also cost certain Rio directors their jobs.
In truth, there’s no deal here — alternative or otherwise — without regulatory approval from the Australians. And it is that process that is really to blame for the uncertainty: given the gyrating macro picture, a politically-sensitive transaction of this size, with a five month gap between agreement and the shareholder vote, had “risk” stamped all over it.
But back to that anonymous fund manager. Trawl back through other examples of such private public pressure and you will see that the disgruntled institution usually backs down once they have secured one to two minor concessions. Witness the little Barclays spat last year over the Middle East investment. It’s as though the appearance of the story in the media has some sort of cathartic effect of its own.
Related links:
Rio seeks ways to take sting out of fundraising – FT
Rio Tinto – Lex