Activist hedge fund TCI will vote against Safran's revised offer for Zodiac Aerospace even after a fiercely fought campaign against the deal in which the French company agreed to lower its offer and make changes to its corporate governance.
The defiant stance by TCI comes as the rise in Safran’s value in recent months has helped the $14 billion hedge fund to a 19.4 per cent gain net of fees this year, making it one of the best performing large funds in 2017.
Safran, a jet engine maker, intended to create a French national champion by buying Zodiac but said this week it would revise down its offer after the smaller aircraft equipment maker issued a string of profit warnings.
TCI, one of Europe's largest activist investors, led by Sir Chris Hohn, had opposed the deal from the start, arguing the price was too high and would destroy value for Safran investors.
During an aggressive campaign Zodiac had threatened to sue TCI for €100 million for “disseminating its denigratory allegations on an unlimited geographical scale”, according to a writ it issued to the hedge fund.
After the revised terms were released, TCI said its governance concerns about the deal had been addressed. This included the structure of the shareholder vote on the deal, what it argued was preferential treatment of Zodiac’s largest investors, and a lack of independent board directors.
However, it still believes the deal is bad and will vote against it when put to Safran shareholders in June.
The hedge fund also said the headline 15 per cent reduction in Safran’s offer for Zodiac’s equity was in effect a 26 per cent reduction – from €9.5 billion to €7 billion – due to a change in the exchange ratio used to calculate how many shares in Safran each Zodiac investor would receive in the deal.
TCI is one of a small number of activist hedge funds that choose to fight high-profile battles in continental Europe, a geography avoided by many large activists due to a corporate governance structure that can provide more of an advantage to incumbent management teams over their investors than in other jurisdictions. – Copyright The Financial Times Limited 2017
