Analysis: Sika investors win AGM battle but will they lose the war?

Did Gates and others get their tactics right in bruising fight?

Those shareholders in Swiss adhesives firm Sika intent on keeping the company independent are probably feeling good after last week’s tumultuous annual general meeting (AGM). The company’s takeover by French glass group Saint Gobain was put on hold after six of the nine Sika board directors that oppose the bid were re-elected.

The anti-Saint Gobain camp was further boosted by the adoption of two proposals from a bloc of international shareholders led by the $42bn (€38.8bn) Bill and Melinda Gates Foundation, in an ultra-rare corporate governance push by the influential US charity. The proposals, aimed at undermining the three Sika board directors who want to sell the company to Saint Gobain, call for a special audit of the company to determine if any directors leaked insider information to Saint Gobain in the 24 months before the AGM. They also call for the creation of special committee to police Sika’s board until the firm’s AGM in 2017. According to the proposals’ sponsors, which beyond the Gates Foundation include asset managers Threadneedle and Fidelity, the idea is for the committee to guard against any misconduct by Sika directors with respect to Saint Gobain.

In sum, it all suggests a big victory for the anti-Saint Gobain camp. Yet while that is true, the camp has no reason to cheer because, ultimately, it may lose the struggle for Sika’s independence.

Why that is has to do with the board elections themselves. Consider that during the votes for the six directors opposed to Saint Gobain, Sika arbitrarily suppressed the majority (5% instead of 52% of the votes) held by the Burkard family, who are the descendants of Sika’s founder. Then when their board representatives, namely the three who support Saint Gobain, were voted on, Sika restored the family’s voting rights.

That is at best unusual, if not downright bizarre. It’s possibly, even, skating on some pretty thin legal ice — which is why the Burkard family has gone to court to have the measure invalidated.

The family’s counter-attack has been further strengthened after it used its majority at the AGM to schedule an extraordinary general meeting (EGM) on July 24.Its purpose: The elections of three anti-Saint Gobain directors, including Sika Chairman Paul Hälg, are to be done over, and the family is betting that by then, the Swiss courts will prevent Sika from limiting its voting rights again. The family also wants to replace Hälg with their own candidate, Max Roesle, and if it succeeds at the EGM, nothing else will stand in the way of a takeover. Mindful of this, Saint Gobain has extended its buy option for the 16% stake held by the Burkard family that has the majority voting rights until 2016. Then, as per Sika’s articles of association, Saint Gobain would “opt out” of bidding for the other shares of company and complete the takeover.

All of which brings us to the key question in the whole episode: did the anti-Saint Gobain camp have the right strategy in the first place?

By proposing audits and committees, instead of concentrating on getting a proposal by Swiss proxy firm Ethos to have the “opting-out” clause struck from Sika’s articles of association, did they over-complicate things?

Despite getting 30% shareholder support, that crucial proposal failed when put to the vote, for the Burkard family’s voting rights were restored.

But hang on: If the six directors on Sika’s board who oppose Saint Gobain decided to supress the family’s majority for their elections, clearly they could have done so for Ethos’ proposal!

This is something that the Gates/Threadneedle/Fidelity grouping, which supported Ethos, should have advocated to Sika’s board. Indeed, the AGM reflects that a majority of Sika’s shareholders – i.e. excepting the family – would have voted for it, and the threat of a takeover from Saint Gobain or any other firm for that matter would have been neutralised.

Asked about their proposals, Iain Richards, Head of Responsible Investment at Threadneedle, said they were prompted by the stance of the Burkard family.

He asks rhetorically: “Why did the family continue to express the family’s long-term commitment to the company if the plan was to sell?”

Richards has a point; it is likely that the family, until the emergence of the deal with Saint Gobain last December, gave the impression that it was committed to Sika’s continued independence.

But that is all in the past now, and the proposals from Threadneedle et al will, unfortunately for them, do nothing to stop a Saint Gobain takeover if the Burkard family prevails in the EGM battle at the end of July.