duesseldorf Activist investor Primestone has lost an election for a new supervisory board member at chemicals distributor Brenntag. On Thursday, a majority of shareholders elected two new controllers proposed by Dax Group. However, the vote was so close that there was a risk of legal disputes over the electoral process.
British Primestone wants to put more pressure on the company’s management, and has put forward two opposing candidates. The fund, which owns a 2 percent stake in Brenntag, has called for a swift breakup of the group, which it expects will result in a significant increase in value.
Primestone representatives objected immediately on Thursday after Brenntag supervisory board chairman Doreen Nowotne announced the results. He raised a possible programming error during the vote. Nowotne interrupted the meeting before explaining that there were no errors based on the audit.
Whether Primestone will now sue the decision is uncertain. The fund has shown in the past few months of disputes that it can fight with tough bandages. Any shareholder is free to object to the resolution of the AGM, provided they object immediately. Usually, proceedings are initiated for breach of information obligations or possible procedural errors.
For Brenntag management, their decision to support the candidate represents a major relief. Chief executive Christian Kohlpaintner does not want a swift breakup of the group, but plans to gradually restructure the world’s largest chemicals distributor. At the shareholder meeting, he once again promoted his approach.
His courses are supported by the Supervisory Board, which will in future be headed by Richard Ridinger. The former boss of Swiss pharmaceutical supplier Lonza has taken a seat on the control committee. Nowotne has announced its withdrawal. At the annual general meeting, she delivered an urgent address to shareholders.
Brenntag is at a “critical stage of success” and the company is building a new global organization. “I ask for your understanding and support. Join Brenntag,” Nowotne said. This also concerns the interests of employees and customers. “I firmly believe: Without stakeholder value, there is no shareholder value.” Many German shareholders want continuity in terms of personnel and no breakup of the group.
German Shareholders Oppose Primestone’s Conflicting Line
In addition to Ridinger, Sujatha Chandrasekaran was newly elected to the supervisory board, where he was, inter alia, former digital boss at US hygiene products manufacturer Kimberly Clarke. However, at the annual shareholder meeting, both received only a slim majority of around 62%.
Failure is possible if major shareholders in Germany and Europe do not support the leadership. Kuehne Holding and asset manager Flossbach von Storch together own more than 10 percent of the shares.
German fund houses DWS, Deka and Union also voted for Brenntag’s candidate. They also want the group to add value, but don’t want to use a crowbar to change course.
Primestone has two influential US proxy advisors, ISS and Glass Lewis. Apparently, many Anglo-Saxon shareholders stuck to their proposals to vote for the investor’s two candidates.
The signal effect is far better than Brenntag
The signaling effect of the AGM extends far beyond Brenntag. It is a question of how hard activist investors can assert themselves in German companies with strategic needs. Even if Primestone has now temporarily failed at Brenntag: experts expect more aggressive action by the hedge fund in the future.
“This case demonstrates that activist investors, even with small stakes, seek to advance the company’s strategic goals by specifically engaging institutional investors, asset managers and voting rights advisors,” said Michael J. Brellochs (Michael Brellochs) said.
This practice has a long history in the United States. “We expect this type of activity to continue to increase in Germany as well,” Brellochs said. “Shareholder and stakeholder management is a core task and challenge for boards, especially during critical stages of transformation.”
Brenntag’s bosses do not want the group to split up quickly, but plan to gradually restructure the world’s largest chemicals distributor.
(Photo: Bruntag)
Brenntag is making the transition. The group created two divisions – one for the distribution of specialty chemicals and one for the bulk business. The two stores work according to different rules. The group also wanted to check that they were staying under the same roof. However, CEO Kohlpaintner said other models are conceivable besides a simple split.
Primestone criticized Brenntag for lagging behind focused rivals, particularly in the specialist business, and that the group had not addressed these issues forcefully enough. Fund representatives accused the supervisory board of forming a “carriage castle” at the shareholder meeting.
With 38% of shareholders voting in favor, Primestone’s feel was predictably positive. Investors are therefore not expected to exit Brenntag. He has yet to comment on this.
more: German companies are becoming preferred targets for activist shareholders.