ANALYSIS: Companies face up to Active Value treatment

Active Value Fund Managers are reported to have played a key role in Cordiant Communications' recent shake-up. Could other marketing groups be heading for a similar fate? Holly Williams investigates

So-called corporate raiders Julian Treger and Brian Myerson instil fear in the hearts of many CEOs in the City. With a reputation for employing robust shareholder activism tactics, the South African co-founders of Active Value Fund Managers are seen to single out firms, buy in and use their investor power to shake them up, force up the share price, then sell out.

Having sparked off shake-ups at a number of firms, including footwear group Scholl, the Active Value duo now appear to be turning their attention to the marketing services sector.

With a stake of over ten per cent in troubled Cordiant, owner of global financial PR brand FD International, Myerson and Treger put the board through its paces in a bid to turn the underperforming company's fortunes around. They also boosted their own in the process.

Suffering the same fate as many in marketing, Cordiant's profits and share price have plummeted. The company recently announced a 48 per cent drop in pre-tax profits for the first half. The bad news was accompanied by the resignation of Cordiant CEO Michael Bungey and a company re-organisation.

Cordiant is keen to downplay Active Value's influence on the group. A spokesman says: 'Neither the succession of David Hearn (CEO of ad arm Bates Advertising) or the re-organisation have anything to do with Active Value.' But some in the City have a different take on events. It is widely believed Active Value played an instrumental part in Bungey's departure.

Myerson and Treger refused to comment for this piece. And yet some in the City say they have form for airing grievances in the press as a means to implement change. It is the sort of shareholder activism that has in the past been scarce among UK investors.

'Traditionally fund managers, if they have a beef with an investee company, would either sell-out or go to management,' explains City PR specialist Alex Mackey. 'Fund managers rarely go to the press first and usually only in the US.'

The company name itself explains Active Value's ethos: being passive doesn't get you anywhere. Active fund managers home-in on firms they feel are under-valued, build up their stake and where necessary agitate for change to increase shareholder value. Outcomes can include creating boardroom friction or splitting firms into component parts to be sold-off.

While marketing services and PR groups are targets - more so now due to falling profits and a knock-on effect on share prices - the sector has experienced the 'Active Value treatment' before.

Chime Communications chairman Lord Bell, owner of PR brands such as Bell Pottinger Communications and The Good Relations Group, admits Active Value lobbied hard for a share buy-back in the firm a decade ago - when they had a stake - but were unsuccessful.

Active Value are likewise said to have been very vocal in their ideas for the then Shandwick International, founded by Lord Chadlington, in which they had a stake of nearly 18 per cent. Chadlington, now CEO of PR group Huntsworth, is coy about the extent of their involvement. 'They're not easy bed fellows and were constantly coming up with questions and ideas, but I rather like that as it keeps management on their toes,' he says.

There are fans and critics of Active Value's work - Chadlington is a self-confessed supporter. He even partnered with Treger for an online venture last year. Other sources close to the then Shandwick say Active Value came up with more than just 'ideas' for the firm and in fact called at one stage for a replacement of senior management. Chadlington evidently succeeded in getting them on-side, and it is believed Active Value later made a tidy sum from Shandwick's sale to The Interpublic Group in 1998.

Some time after the Shandwick deal, Active Value moved on to Cordiant.

City analysts say they are also setting their sights on others in marketing services.

CAI Cheuvreux media analyst Alex de Groote believes Incepta, owner of the Citigate PR brands and The Red Consultancy, is a possible candidate.

'Incepta and Cordiant are companies that have tried to knit together lots of acquisitions and have made themselves less attractive as a whole than the sum of their parts. When that is the case, people look to others to break them up,' he says.

Incepta CEO Richard Nichols concedes the company is currently undervalued, but believes they have good growth potential and 'is confident in the way we run our business and the quality of the management team'. Laying down the gauntlet, Nichols says he is happy for investors to buy Incepta shares if they see the company as being undervalued.

Despite the criticism, Active Value essentially helps unlock shareholder value. Their strategies may not always be long-term, but they call for change when others sit back and watch firms fall apart. Instead of running scared, CEOs ought to engage Active Value in dialogue as they should with any company shareholder.

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