Activist shareholder takes aim at luxury goods giant Richemont … and hits the bull’s-eye

10 Aug 2022

An activist shareholder raising questions seems to have sparked a flurry of board changes at Richemont, one of the world’s largest luxury goods companies. Richemont is best known for luxury brands including Van Cleef & Arpels, Cartier and Montblanc.

Hedge fund Bluebell Capital Partners, acting in its capacity as investment manager of the Bluebell Active Equity Master Fund and the Bluebell Capital Co-Investment Fund I LP Fund, has requested that Francesco Trapani be elected to the board to represent the A-class – ordinary shareholders. Trapani is former chief executive of Italian luxury brand Bulgari.

However, the Richemont board has rejected this proposal, and plans to have independent director Wendy Luhabe represent the ordinary shareholders.

Luhabe joined the board in 2020 and was the founder director of Wiphold, one of the country’s first BEE consortiums, which was set up to create business opportunities for women.

Luhabe’s experience on boards is impressive, having served as chair at Vodacom and the Industrial Development Corporation. She has also sat on the boards of Tiger Brands, Telkom and the JSE.

Bluebell’s joint chief executive officer, Giuseppe Bivona, told Reuters last weekend that the decision to appoint a representative in the form of Luhabe is a partial victory, but is still not a credible decision.

“Effectively, the board has renamed an existing representative of B shareholders as a representative of A shareholders,” he told Reuters, adding that this shows Richemont is not taking the matter seriously. Richemont has confirmed that Luhabe does not own any B shares.

As at the end of March this year, the company revealed it had a whopping R108.9-billion available for distribution to shareholders. However, the distribution of the dividends between A and B shares seems to be a bone of contention.

The board has proposed that shareholders with A shares receive an ordinary dividend of R39.19 plus a special dividend of R17.42 a share, which means that a shareholder with 100 A-shares would receive R5,661.

However, shareholders with B shares will receive an ordinary dividend of R3.92 and a special dividend of R1.74 a share, which means a shareholder with 100 B-shares would receive a paltry R566 in comparison.

The total payout would amount to roughly R32-billion.

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Richemont Employee Benefits, a wholly owned subsidiary of the company, has waived its right to receive dividends on 6 million A-shares, and the remaining balance will be carried over to the next financial year.

While at first glance the B shareholders seem to be getting the worst of the deal, the problem is that chairman Johann Rupert actually owns all the B-shares and 50% of the voting rights, putting him firmly in the driver’s seat.

This is not the first time Trapani has sought a board seat with the backing of activist investors. Five years ago, he was appointed as an independent director on the board of Tiffany’s following lobbying from activist investor Jana Partners.

He is the co-founder of Bluebell Capital Partners, which last year succeeded in toppling management at Danone following poor company performance under the watch of former chief executive Emmanuel Faber.

Key changes to Richemont’s board include having six, rather than three, members to be elected at the AGM. Shareholders also have the right to elect three representatives for the A- and B-shares, respectively, rather than just one representative. The company noted that it will share its reasons for rejecting the Bluebell Capital proposal in a letter to shareholders.

Board members Ruggero Magnoni and Jan Rupert will be stepping down, while Johann Rupert will be standing for chairman once more.

Other board members up for re-election are Josua Malherbe, Nikesh Arora, Clay Brendish, Jean-Blaise Eckert, Burkhart Grund, Keyu Jin, Jérôme Lambert, Wendy Luhabe, Jeff Moss, Vesna Nevistic, Guillaume Pictet, Maria Ramos, Anton Rupert, Patrick Thomas and Jasmine Whitbread. Richemont’s AGM will take place on 7 September. Management is also hoping to approve annual remuneration of R133-million for the board for the year ahead.

Risk adviser Marsh says shareholder activism is on the rise and that it frequently exploits corporate mismanagement, lack of diversity at board level, excessive costs and excessive director remuneration. Shareholder activists then use their stake to challenge management strategy and structures.

A 2019 survey by consulting firm AlixPartners showed that out of more than 500 European publicly traded companies in the UK, France, Germany and Italy, 68% reported concern at the rise in investor activism; 53% admitted the lack of a clear strategy to deal with an activist attack; and 57% believed they would need third-party support when managing the risk. BM/DM

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