Does Mike Ashley, the UK billionaire businessman and owner of Sports Direct International PLC (and perhaps more famously Newcastle United soccer team), aspire to become the UK protégé of Carl Icahn, the US activist shareholder? Increasingly so, if recent events are anything to go by, but there remain differences between the two as wide as the Atlantic ocean itself, not least their comparative net worth.
In the past few days Ashley has bought an 11 percent stake in House of Fraser PLC, a well-known and upmarket UK department store. He has for some time had his eye on acquiring the retailer himself. Ashley’s acquisition was brought on in the wake of House of Fraser announcing a buy-out deal with Sanpower, the Chinese group controlled by the billionaire, Yafei Yuan, in which Sanpower would acquire 89 percent ownership of the retailer.
To some Ashley’s action may seem reminiscent of Carl Icahn’s attempts in August of last year to derail a proposed buy-out of Dell Inc., by its founder and CEO, Michael Dell, in favor of a buy-out by Icahn himself. However, while Icahn was very much on the offensive during the course of his attempts, ultimately culminating in the filing of a lawsuit against Dell’s board of directors, Ashley is very much on the defensive in his. First off, Ashley would appear to have fewer financial resources at his disposal, with a net worth of $2.5bn compared to Icahn being valued at $25bn. Also, Ashley acquired his shares from Scottish business Tycoon, Sir Tom Hunter, which may have been subject to pre-emption rights, which would have entitled other existing shareholders to purchase the shares at the same price, offered to Ashley. As a result, a legal challenge may ensue in the English courts, threatening to unwind to Ashley’s acquisition and his interest in the company.
Furthermore, to some Ashley’s shareholder activism may seem profoundly ironic, given recent events. Levels of shareholder activism have increased markedly since the economic crisis of 2008, in part as a response to, and an attempt to curb, perceived excesses in executive compensation, particularly when that compensation seemed to reward failure. Ashley is himself the executive deputy chairman of Sports Direct International PLC, a company which he founded. Last week the company’s shareholders voted down an executive compensation scheme which would have benefited Ashley to the tune of $100m. Ashley’s activism is not therefore in the least bit “altruistic” when judged against the reasons for the general increase in shareholder activism mentioned above, and should not be lauded as such. Perhaps he has this in common with Icahn as well?
It will be interesting to observe how successful Ashley will be in his attempts to block the takeover by Sanpower of House of Fraser. As a shareholder with at least five percent ownership in the company, pursuant to sections 303 and 338 of the UK Companies Act 2006 Ashley has the right to both requisition a shareholders meeting and requisition a resolution at the annual general meeting of the company. To that extent he will possess a loud voice and some influence over the shareholder approval process of the takeover, a process necessary if Sanpower’s bid is to succeed. Also, if Rule 9 of the UK Takeover Code applies (and it is unclear on the facts available whether it would), then Sanpower, as a buyer of at least 30 percent of the shareholding of a UK public company, will be required to offer to buy the shares of all other shareholders, including those held by Ashley, at the same price or higher as it offered to the seller. Therefore, if the price paid by Ashley to Turner for his shares was substantially lower than the price offered by Sanpower in its bid, and if Rule 9 applies, then Ashley may face a dilemma: abandon his efforts and sell out to Sanpower at a huge profit, or stay in and fight on for a larger prize.
Dominic Pearson is an attorney (solicitor) admitted to practice in England and Wales. Before embarking on his LL.M. degree at Berkeley, he practiced for a number of years at two major law firms in London.