New York arbs are assumed to be a steely breed, more concerned with the clinical pursuit of wealth than with high-minded ideology about the way companies should be governed. But for Guy Wyser-Pratte, the urbane and refreshingly irreverent Franco-American who runs the privately-owned Wall Street money management and risk arbitrage firm that bears his own name, these two endeavours are not mutually exclusive. Indeed, Wyser-Pratte claims that his governance activity is all about ensuring that he gets his dues as a shareholder; and he says that his motivation for going into battle with a company is almost always purely financial.
Wyser-Pratte says this distinguishes him from certain other crusaders, particularly those who take what he describes as ‘a more ethereal approach’ on issues like corporate democracy. ‘My view is that it’s not these ethereal notions that drive institutions to vote with you. It’s dollars and cents. You have to show them how they can derive value through taking a specific action.’
The specific actions taken by Wyser-Pratte have grown more frequent since his first fight over 20 years ago, when he was running the risk arbitrage department at Prudential-Bache Securities Inc. Pru-Bache had absorbed the firm his father originally created in Paris some 45 years earlier.
That fight, which first infected Wyser-Pratte with the corporate governance bug in 1974, arose out of a holding of the preferred stock of sugar company Great Western United. ‘We took that position in Great Western because we saw that the preferred stock was heavily in arrears,’ explains Wyser-Pratte. At the time sugar prices were skyrocketing, which meant the company should have been paying its arrears. But it was not. So he and a colleague from another firm decided to sue Great Western to claim their arreared dividends. ‘We sent off the lawsuit and in a week we got a cheque in the mail,’ recalls Wyser-Pratte.
Such instant gratification provided all the impetus he needed to carry on. ‘I realised then that if you have the will to stand up to such people, you can get somewhere. I saw how sensitive a corporation could be if you were in the right.’ Now he had a new course of action open to him when someone did something against his interests in respect of a portfolio position: ‘From then on, we didn’t just have to sit there and get hammered – or be forced to liquidate our position.’
Wyser-Pratte characterises his broad strategic approach over the last 20 years as ‘defensive and active – but not proactive.’ By this he means that he’s not in the business of fermenting trouble at a corporation ‘simply because it’s out there and because it’s vulnerable.’ On the contrary, he will normally only get actively involved in a tussle with a company if he already has a position in the stock and the company does something that is against his interests.
There have been one or two exceptions to this, however. In Paris last year, for example, Wyser-Pratte was incensed by Franois Pinault’s behaviour towards minority shareholders during Pinault Printemps’ acquisition of La Redoute, a mail order firm which was effectively a cash cow.
Wyser-Pratte was not a shareholder in the company, but he was willing to bend his own rule in this case, leading a minority shareholder effort to block the takeover. ‘This was one of those rare times when someone does something that really riles me. Pinault was trying to fleece the shareholders of La Redoute and, as I told the COB in my deposition, it was also intimidating analysts, to prevent their giving a true appraisal of the company’s value. I knew this for a fact, because I had talked to an analyst in a brokerage firm in Paris who told me that she had produced an appraisal for the company but was not allowed to distribute it to clients. As she said, “You realise that in Paris, if you cover retail shares you have to be able to talk to Pinault Printemps.” And she had been told that if she publicised her appraisal, Pinault Printemps would never speak to her again.’
Wyser-Pratte says he knew from the start that this one would be an uphill battle. But he has a personal interest in seeing the French capital markets ‘shape up’, not least because of his origins: born in 1940 in German-occupied France, the son of a French banker (pictured above) who founded an arbitrage business in Paris in 1929, Wyser-Pratte spent the first eight years of his life in Paris.
Anyway, he says the terms of the La Redoute deal were just plain unfair. ‘I wanted to say “You just can’t do this and get away with it”. I wanted to make that point of principle,’ he explains. In the event the firm made no money out of the exercise, but Wyser-Pratte can claim something of a moral victory, since it was one of the factors behind the COB’s decision to change the law on independent appraisals in France.
Generally, however, Wyser-Pratte and his colleagues prefer there to be something more tangible at stake than mere principle before committing money and other resources to a fight. Most of the roughly 25 shareholder initiatives he has undertaken since 1974 have been about protecting or adding value to the firm’s portfolio position.
The list includes a number of high profile scraps, with companies like Van Dorn back in 1992 (when the aim was to rectify a number of corporate governance shortcomings, for instance by removing a poison pill and changing the voting structure); Sears in 1994-5 (where the goal, duly achieved, was to persuade the ailing retailer to spin off Allstate Insurance); and US Shoe (where the long-running saga of shareholder dissent was finally brought to an end through Luxottica’s purchase of the company following a proxy battle last spring).
Wyser-Pratte describes one of the weapons in his activist armoury as ‘a 300lb attorney in West Virginia’, one William Frazier, who relishes getting involved in the fray. ‘And he is literally difficult to move out of a meeting room,’ adds Wyser-Pratte.
Mr Frazier has been put to good use in recent years as a nominee for election to awkward companies’ boards of directors. Wyser-Pratte notes that once an activist group has one member of a corporation’s board on its side, the game is usually up: ‘So, if a company is being really outrageous, we will propose Bill Frazier to go on its board,’ he says. ‘And we did actually get him on the board at Van Dorn.’
That was in 1992, before the SEC communication rules were liberalised, so the dissident group just sent a letter to shareholders in advance of the annual meeting saying, ‘Show up. Something’s going to happen.’ The major shareholders did show up; Bill Frazier was nominated from the floor; and he was duly elected to the board there and then – at the meeting. That was a one-off in US corporate history. ‘Since then, whenever things have got difficult with a company, we have proposed Bill Frazier to go on the board,’ says Wyser-Pratte. ‘Indeed, during US Shoe’s negotiations with Nine West, we were proposing both him and his son.’
Frazier apart, Wyser-Pratte makes good use of expert legal advisers and has also hired proxy solicitation firms from time to time. In the Van Dorn case, for instance, he used the services of Georgeson & Company. ‘We won that vote,’ he recalls, ‘We then went to see the chairman of the company – without actually pulling the trigger to get rid of the entire board of directors – and said, “Here’s the vote. What are you going to do? Do you give in or do we pull the trigger?”‘
That might have been an obvious victory but in the campaign against the UK’s Northern Electric last spring, the outcome was less clear cut. The situation there was unusual, to put it mildly. Trafalgar House had made a bid for Northern but let it lapse when, three days before the end of the offer period, the UK’s maverick electricity regulator, Stephen Littlechild, announced a decision to review the industry’s pricing regime. That announcement upset not only the Trafalgar bid, but also the government’s offer for sale of its 40 per cent stakes in electricity generators National Power and PowerGen, which had closed the week before. Their prices dropped immediately – to below the price already paid by investors.
Wyser-Pratte had a position of about 1 mn shares – nearly 1 per cent – in Northern Electric. He was shocked by the regulator’s move: ‘I nearly had a stroke,’ he says. He wasn’t the only one. Both the City and the international investment community were furious and incredulous that this could be allowed to happen in the London market.
As for Trafalgar House, it had requested Northern’s board to allow it to table a new bid, but Northern’s board said no. ‘So we had to make a choice,’ says Wyser-Pratte. But in practice that choice was a foregone conclusion: ‘It was so outrageous. Northern Electric was hiding behind a Takeover Panel regulation {which says a predator must wait a year before making a new offer once a bid has lapsed}so we had to force the issue.’
That he certainly did. With the help of Edelman Financial in London he generated a lot of publicity and a respectable number of votes at the EGM, albeit well short of a technical victory. ‘We lost the vote but we won the war because we forced them to restructure and effectively forced them to allow Trafalgar House to bid,’ says Wyser-Pratte. In the end, Trafalgar decided not to re-bid, because by the time it was in a position to do so the proliferation of offers for other companies in the sector had moved prices significantly higher.
But that took little away from Wyser-Pratte’s satisfaction with the outcome and he has added the Northern Electric newspaper clippings to his three scrap books of documents and press cuttings covering his various governance battles since 1974.
One of the more telling – and certainly more ironic – took place in 1981, when Wyser-Pratte was with Pru-Bache. ‘Houston Natural Gas had been greenmailed by Coastal States Gas and had then done everything it could to prevent a new offer from a company called Transco Energy from coming in to the boardroom,’ he recalls. ‘And I had decided I should file a lawsuit against Houston.’ He duly cleared his plans with the top levels of the Pru’s hierarchy, who gave him the go-ahead – but apparently without first checking with the president, Bob Sherwood. ‘At the point when news of the lawsuit hit the Dow Jones tape, Sherwood was in the offices of the chairman of Houston Natural Gas and about to sign a huge insurance deal,’ recalls Wyser-Pratte. ‘It didn’t get signed.’
It’s a nice story because it highlights the kind of conflict of interest that can face institutions with different irons in the corporate and financial fire; and can militate against shareholder activists being able to rally the institutional vote in support of their initiatives. ‘But this little ship doesn’t have those conflicts,’ concludes Wyser-Pratte.
