By: Matheau J. W. Stout

Mergers and acquisitions (M&A) in international markets add a layer of complexity due to varying legal frameworks, cultural differences, and market dynamics. However, in recent years, another force has reshaped the global M&A landscape: shareholder activism. Shareholder activists—often institutional investors, hedge funds, or individuals—are using their stakes to influence corporate decisions worldwide, particularly in M&A transactions. As this trend spreads across international markets, companies must learn to navigate the unique challenges and opportunities posed by activist investors in different jurisdictions. In this article, I’ll explore how shareholder activism impacts M&A in international markets, the strategies activists use, and how companies can manage activism on a global scale.

The Rise of Shareholder Activism in International Markets

Shareholder activism has long been a feature of U.S. markets, where activist investors use their ownership stakes to influence corporate governance, drive strategic changes, or push for mergers, acquisitions, or divestitures. However, this trend is now gaining traction in markets across Europe, Asia, and other regions. Activist campaigns, once largely concentrated in the U.S., are now targeting multinational companies in various industries, including energy, technology, and financial services.

The globalization of shareholder activism can be attributed to several factors:

• Increased Global Investment: Institutional investors and hedge funds are expanding their reach into international markets, often acquiring stakes in companies across multiple countries. As a result, activism has become a global phenomenon, with investors seeking to influence corporate strategy beyond their home markets.
• Convergence of Governance Standards: As international markets adopt higher standards for corporate governance, shareholder activists find it easier to demand changes related to transparency, board composition, executive compensation, and M&A strategies. Many countries have strengthened shareholder rights, making it easier for activists to challenge management decisions.
• Cross-Border M&A Activity: The rise of cross-border M&A has created new opportunities for shareholder activists to push for deals that unlock value. Activists may demand the sale of underperforming divisions, pressure companies to pursue international mergers, or oppose deals they believe do not maximize shareholder value.

How Shareholder Activism Impacts M&A in International Markets

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Shareholder activism in international markets mirrors many of the same tactics used in the U.S., but with unique regional nuances. Activists typically focus on influencing M&A transactions in ways that increase shareholder returns, whether by pushing for a sale or blocking a deal they see as unfavorable. Here are several ways shareholder activism shapes M&A in global markets:

Demanding Strategic Sales or Mergers

In international markets, activists often target companies they believe are undervalued or underperforming, pressuring management to pursue strategic sales or mergers. Activists may argue that a merger with a larger or international competitor would create synergies, improve market positioning, or unlock shareholder value. Alternatively, they may push for a sale of the company to a private equity firm or strategic buyer, arguing that such a move would provide immediate returns to shareholders.

This approach is especially common in Europe, where activist investors have targeted multinational conglomerates, demanding divestitures or strategic sales of underperforming units.

Blocking Cross-Border Mergers

While some activists push for mergers, others seek to block cross-border deals they view as unfavorable or insufficiently beneficial to shareholders. In these cases, activists may launch campaigns opposing a proposed international acquisition or merger, arguing that the deal undervalues the target company, dilutes shareholder value, or fails to address strategic risks.

For example, an activist investor may oppose a European company’s merger with an Asian firm if they believe the synergies are overstated or that regulatory hurdles could reduce the transaction’s value. Activists often use proxy fights, public campaigns, or shareholder resolutions to rally opposition to these deals.

Pushing for Divestitures and Breakups

Activists targeting multinational companies often advocate for divestitures or breakups, particularly when they believe the company’s assets would be more valuable if separated. This strategy is common in industries such as energy, consumer goods, and industrials, where global conglomerates may operate diverse business units with different performance profiles.

In these cases, activists argue that divesting non-core or underperforming assets would allow the company to focus on its core business, enhance profitability, and improve shareholder returns. This pressure can lead to M&A activity, as companies may sell off divisions or spin off subsidiaries in response to activist demands.

Influencing Cross-Border Governance

Shareholder activism in international markets is also focused on improving corporate governance standards, particularly in cross-border M&A transactions. Activists may demand changes in board composition, push for greater transparency, or call for stronger oversight of executive decisions. In some cases, they may advocate for the appointment of directors with international expertise to guide the company through complex cross-border deals.

Activists often argue that strengthening corporate governance is essential for ensuring the success of cross-border M&A, reducing risks, and protecting shareholder interests. By improving governance practices, companies can demonstrate accountability and responsiveness to investors, which can mitigate the likelihood of activist opposition in future deals.

Regional Differences in Shareholder Activism and M&A

While shareholder activism is becoming more global, there are important regional differences in how activism plays out in international markets. Understanding these nuances is critical for companies navigating activism in cross-border M&A deals:

Europe

In Europe, shareholder activism has gained momentum, particularly in countries like the UK, Germany, and France. Activists often target large multinational companies, pushing for strategic changes such as divestitures or acquisitions. However, European corporate governance structures, such as dual-class share structures and worker representation on boards, can make it more challenging for activists to gain control of companies compared to the U.S.

Activists in Europe tend to focus on long-term value creation, and campaigns often emphasize environmental, social, and governance (ESG) factors. As a result, European activists are more likely to push for M&A deals that align with sustainability goals or address regulatory risks.

Asia

In Asia, shareholder activism is still relatively nascent but growing rapidly, particularly in markets like Japan, South Korea, and Hong Kong. Activists in Asia often target companies with large cash reserves or inefficient capital allocation, pressuring management to pursue mergers, acquisitions, or share buybacks to unlock value.

In Japan, corporate governance reforms have strengthened shareholder rights, creating more opportunities for activists to influence M&A strategy. However, cultural factors, such as a preference for consensus-driven decision-making and a reluctance to challenge management, can limit the aggressiveness of activism in some Asian markets.

Latin America

Shareholder activism in Latin America is still in its early stages, but growing investor interest in governance reforms and transparency is driving change. In countries like Brazil and Mexico, activists are focusing on improving corporate governance and pushing for strategic M&A deals that enhance shareholder value. Activists in the region often face challenges related to regulatory uncertainty and market volatility, but they are increasingly influencing M&A decisions in industries like energy, finance, and infrastructure.

Managing Shareholder Activism in International M&A

For companies engaged in cross-border M&A, managing shareholder activism requires a proactive approach. Here are some strategies for navigating activism in international markets:

Engage with Activists Early

Companies can often mitigate activist campaigns by engaging with activists early in the process. By opening lines of communication and addressing activists’ concerns, companies may be able to find common ground or negotiate changes that benefit both parties. Early engagement can also help companies avoid public confrontations or proxy fights that could disrupt the M&A process.

Strengthen Corporate Governance

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Strong corporate governance is key to managing shareholder activism, particularly in international markets. Companies should ensure that their boards are composed of directors with diverse skills and experience, including expertise in cross-border transactions. Enhancing transparency, improving oversight, and aligning executive compensation with long-term goals can also demonstrate a commitment to shareholder value and reduce the likelihood of activist intervention.

Evaluate ESG Considerations

Activists in many international markets are increasingly focused on ESG factors when evaluating M&A deals. Companies should conduct thorough ESG due diligence and ensure that their transactions align with environmental and social goals. Addressing ESG concerns proactively can help companies build credibility with activists and investors alike.

Prepare for Proxy Fights and Public Campaigns

In regions where shareholder activism is gaining traction, companies must be prepared for the possibility of proxy fights or public campaigns. Developing a clear communication strategy, engaging with shareholders, and building support from institutional investors are essential steps in managing activist challenges. Companies should also be prepared to defend the strategic rationale behind their M&A decisions and demonstrate how the deal will create long-term value for shareholders.

Conclusion

Shareholder activism is an increasingly important force in international markets, influencing M&A decisions and corporate strategies on a global scale. As activists push for strategic sales, mergers, divestitures, and governance improvements, companies must be prepared to navigate these dynamics, particularly in cross-border transactions.

By engaging with activists, strengthening corporate governance, and addressing ESG concerns, companies can better manage activist campaigns and ensure that their M&A transactions align with shareholder interests. As activism continues to grow in international markets, companies that adopt a proactive approach to managing activism will be well-positioned to succeed in the global M&A landscape.

Published by: Nelly Chavez