http://www.boardmember.com/issues/archive....le_id=12147&V=1A Former U.S. Marine Hits Europe’s Corporate Boardrooms
by Julie Connelly
Shareholder activist Guy Wyser-Pratte is shaking up businesses around the Continent—and says he’s got more targets in his sights.
The German media have called the American the “Rambo der Kapitalmarkte”—a backhanded tribute to his raids on numerous companies he has seen as undervalued.
He typically buys in, raises enough hell to get management to make changes that boost the share price, and then sells out and leaves with his profits. Guy Wyser-Pratte is offhand about the Rambo moniker. “I might have seen one or two of the films,” he says with a shrug. But Wyser-Pratte, a former captain in the U.S. Marine Corps, has stoked this tough-guy reputation, once warning the European business establishment to “wake up and smell the napalm.”
Wyser-Pratte, 64, made his name in the high-wire, brass-knuckles world of U.S. risk arbitrage during the 1970s and 1980s, and in 1991 redefined himself as a value investor. He has taken positions in 57 companies since 1992 and says that he’s earned a 26% annualized return. Among his high-profile exploits was herding Willamette Industries, a forest-products company, into accepting a buyout from rival Weyerhaeuser in 2002 by successfully challenging Willamette’s “Just say no” anti-takeover defense. Since the mid-1990s, Wyser-Pratte has also been hunting targets in Europe. Five years ago he tossed a grenade into France, engineering the first proxy contest in which a foreigner succeeded in throwing out the board of a French company—Groupe André, a clothing retailer now known as Vivarte. He won his Rambo nickname as a result of a current battle with Germany’s IWKA AG, a manufacturer of industrial machinery.
France completes a circle for Wyser-Pratte, who was born in Vichy (as a baby he was kissed by the leader of the pro-German wartime government, Marshal Pétain). His family moved to the U.S. when he was 7. He says he became an American by learning to play baseball. But he still pronounces his first name “Gee,” with a hard G, and breaks off conversations in American English to take business calls in French.
Wyser-Pratte doesn’t confuse what he does with philanthropy, but he argues passionately that the job of a board is to create value for shareholders. If the directors aren’t doing so, he’s happy to buy stock and rattle a few cages. In an interview in his New York City office with Corporate Board Member’s Julie Connelly, Wyser-Pratte talked about the growth of shareholder activism in Europe, how the emphasis on stakeholders does a disservice to stockholders, and why it pays to have spent four years in the U.S. Marines. Excerpts:
How do you pick your targets?
Very often it’s by referrals from people who have shares in a company, or who know the company and understand the problem it has and what we are capable of. They ask us to see if there is something we can do about the discrepancy between the company’s market price and where it should be trading.
Then we crunch the numbers and try to understand why the company is selling at a discount. And if we can figure that out and determine what to do about the closing of the differential, we’ll decide whether we’re going to launch a little campaign. We probably take on about a quarter of the companies that are referred to us.
But first it’s a question of finding the discount. Then we see if the discount is due to some corporate governance failure, something in the structure of the company. Corporate governance malfunction is usually hiding something far more serious, which is an underutilization of assets or destruction of value. Management is destroying value because it has operations that don’t earn their cost of capital and will never earn their cost of capital.
You create value by having management’s interest coincide with that of the shareholders. And until you do that, the rest of corporate governance is a lot of concepts that you have to have in order for a corporation to be well run, but it’s not going to increase the price of the shares for you until somebody questions the value creation. That’s where we come in. We’re the instigators for getting managements to align themselves properly with the shareholders.
We prefer to work on a very cooperative, harmonious basis with the folks that we pick as targets, but they know that if it’s not going to be harmonious, we’re capable of pushing them right into a proxy fight. In our present campaigns we’ve been very effective at pointing out the glaring structural errors within a company’s overall makeup. We’ve done it a number of times now—in France, in Germany, Holland, Belgium, and even in Slovakia.
What got you interested in Europe?
In the mid-’90s friends of mine in France saw how effective we were in value creation. They began to pick targets for us that we could go after with gusto. There was a lot to do. There still is a lot to do, and not only in France, obviously.
But certainly you can’t shake things up all by yourself.
It’s a question of coalition-building. Germany’s IWKA AG, which we’re after now, has a tremendous robotics division. We’re trying to get them to sell off their processing and packaging operations and concentrate on the robotics. Other investors are seeing this and watching the research departments around the world pick up the scent that without these other divisions, IWKA would be a gold mine. Because these investors gave us their added support at the last shareholders’ meeting, we got 38% of the votes to withdraw approval of the board—without even soliciting proxies.
So as investors continue to buy into this strategy, IWKA runs a real risk that at the next shareholders’ meeting we can go for a vote of no confidence. And that’s the worst slap shareholders can give to a company in Germany—the very worst.
What is different about the environment in Europe, compared with what you’re used to in the U.S.?
In the U.S. it’s not so much the establishment, the way it is when you go into France and Germany. In France you have a huge political problem to overcome, because first of all the French don’t like to be told by anybody, particularly an outsider, what to do.
And even though I have dual French and American citizenship, they speak of me as “Here comes the American Marine.”
You have a clique in France, an old-boy network, the old families aligned with the bureaucracy. This clique has a sort of vested interest in preventing the entrepreneurial class from climbing in society. I would like to show the entrepreneurs the way to force change through the financial markets. I have a political agenda as well, which is that they should really be embellishing the private sector.
In Germany it’s a little different. It’s what they call Deutschland AG—Germany Inc. And that’s the political class, which you could say is the Socialist Party [the Social Democratic Party], the party in power now. They control everything. If somebody wants to get something done in Germany and the wrong party is in power, forget it.
You’ve criticized the stakeholder culture. Why?
It’s very simple: All the stakeholders—the employees, the local vendors, the unions—are protected by legal contract, except for the shareholders. They have to depend on the board of directors to protect their interests, which is exactly why shareholders should necessarily be the major concern of a company’s board of directors. But directors hide behind the stakeholder concept. When they make decisions, they often cite “other considerations” in order not to have to do their job of enhancing shareholder value.
It sounds like nobody else in Europe is championing shareholder value, but surely that can’t be.
There are others. In France there are two women—Sophie L’Helias, who is a lawyer, and Colette Neuville, who runs an association that represents minority shareholders in French companies—who are very active in corporate governance. Frits Bolkestein, who is Dutch and just stepped down as the European Union’s internal market commissioner, tried to eliminate Germany’s “VW” law, which makes a takeover of Volkswagen practically impossible. He didn’t succeed, but he is really a champion for shareholder rights. The new internal market commissioner is Charles McCreevy, an Irishman. He’s proposing a one-share-one-vote rule across Europe. That is a huge deal. It would eliminate double voting rights, which allow certain shareholders to remain in voting control of a company, and a lot of outfits are going to be screaming.
Change agents aren’t popular, especially if they’re outsiders. Do the Europeans ever retaliate?
Oh, sure. They put me in jail in France last February. I showed up in Paris and there was a summons waiting for me at the Ritz hotel to appear at the judicial police station. The judicial police have the right to arrest you for 48 hours without notice. So I was put in a cell. What they did was take my belt, my shoelaces, and my tie so I couldn’t hang myself. After a few hours I was warned that I might be there the full 48 hours and they might extend that. It was engineered, I’m pretty sure, by someone
I had sued years ago who colored up an old dossier on me and showed it to a magistrate. The magistrate was determined to get me and told a person she interviewed about me, “This time I’m going to have his skin.” Eventually I was questioned by a very, very conscientious and well-versed police chief and I was able to convince him I’d done nothing, and he said, “M’sieu, you are free to go.” So off I went.
A few years before that, my wife and I were stopped and searched at the Paris airport—all our baggage, everything, was gone through. I knew something funny was behind it, so I had a friend of mine check with customs inspectors he knew, and they came back to my friend to tell him they had instructions to harass me at the airport. Vive la France!
Why do you keep on with this work? Aren’t there enough opportunities in the U.S.?
I think we’re on the side of the angels in most of these things. We are really doing good for the markets that we can get involved in, the companies that we’re involved in. I guess I didn’t spend four years in the Marine Corps for nothing. You get a certain attitude in the Marines where people may not like you, but they will respect you. And that’s a bit of my attitude on these things.