“When people say activism is on the rise, our style of investment is still very much in the minority, where we deliberately target companies with a view to try to make change, to create or unlock shareholder value. We’re not really interested in ‘issues-based’ activism, because at the end of the day, that’s really just a difference of opinion. We’re activists with a specific financial strategy.”
Active investment managers will often express their disappointment with the way a company is being run by going underweight in the stock, says Radzyminski. This is sometimes called “accidental” activism, where someone who bought the stock for their own criteria is dissatisfied with some aspect of its business or structure, and tries to exhert influence to bring about change.
A good example, he says, is Matt Williams (former head of equities at Perpetual), who fought for several years to dissolve the cross-ownership of brickmaker Brickworks and investment group Washington H. Soul Pattinson – or even to merge the two – claiming that that could unlock $1 billion of shareholder value which was suppressed by the arrangement.
“Although he was unsuccessful, at least [Williams] tried to do something about it,” says Radzyminski. “Or you have the likes of [equities manager] Allan Gray – while they’re not buying companies deliberately with a view to being an activist, if something happens that they don’t like, they will agitate for change to defend their position.”
Sandon, however, deliberately buys shares in companies that it thinks could be doing better, or that own assets with more value than the market currently recognises. “We have a very strong conviction in our views, and we’re prepared to express those views in more than just selling shares in companies we don’t like. Then we’ll agitate for change. We’re no different to any other shareholder, it’s just that we’re prepared to do a hell of a lot more to get the results we want.”
A current example is Sandon’s campaign to convince Tatts Group to sell its wagering business – which contributes 38 per cent of the company’s earnings before interest and tax – and concentrate on the lotteries business (60 per cent of EBIT). “The lotteries business has attributes that are very similar to infrastructure assets, but they’re not valued accordingly,” says Radzyminski. “We think the sum of the Tatts Group parts is worth significantly more than the current market price.
“We believe the company is worth more than $5.50 if separated, versus $3.70 at present, and if growth opportunities in lotteries are pursued and value-creative capital management options undertaken, it could be worth more. As you might imagine, the company and the board don’t want to do that – to them it’s a case of, ‘Why would we want to become smaller?’ But from our perspective as a shareholder we don’t care so much about size, we care about value on a per share basis,” says Radzyminski.