Activist investors make presence felt in boardroom

London Briefing:Shareholder activists are out in force in the City this summer - and they have some of Britain's biggest companies in their sights. Telecoms giant Vodafone has been called on to spin off its multibillion dollar stake in Verizon Wireless, while Barclays is being urged by activist investors to drop its £45 billion (€66.7 billion) bid for the Dutch bank, ABN-Amro.

Cadbury Schweppes, meanwhile, is in the process of splitting itself in two, a controversial strategy it presented to investors just days after the US shareholder activist Nelson Peltz popped up on its shareholder register.

Behind the Vodafone campaign is an outfit called Efficient Capital Structures (ECS). It is a specially-created vehicle backed by the former Marconi executive John Mayo, along with City banker Glenn Cooper, the man who floated Manchester United.

ECS wants Vodafone to take on significantly more debt and either create a tracker stock linked to its 45 per cent stake in the US mobiles operator, Verizon, or to spin off the stake. The activists reckon their plans would unlock as much as £38 billion of hidden value, which would then be returned to Vodafone shareholders.

The City is sceptical and Vodafone, headed by chief executive Arun Sarin, has rejected the proposals. Undaunted, ECS says it intends to stir up support among other shareholders and will put its case at the mobile phone giant's annual meeting next month.

At Barclays, meanwhile, a New York-based hedge fund, Atticus, is attempting to rally shareholders against the British bank's bid for Dutch rival ABN-Amro. And it was a hedge fund - the Children's Investment Fund - which put ABN into play in the first place, despite owning just 1 per cent of the shares.

While praising Barclays for being "a high-quality business", Atticus is scathing of its move on ABN, which it says is "an inferior business," with a "sprawling collection of assets".

Like the Vodafone board, Barclays has rejected the claims of its activist investor. But its ABN offer will have to be approved by its own shareholders and Atticus has made it clear that it will be voting against the deal.

On its own, Atticus cannot block the bid, as it speaks for only 1 per cent of Barclays' share capital. The ECS stake in Vodafone is even smaller - it holds just 210,000 shares, spread across 100 nominee accounts, accounting for a minuscule 0.0004 per cent of Vodafone's share capital.

Even at 3 per cent, Nelson Peltz's stake in Cadbury is tiny. Cadbury's management maintains splitting the business had nothing to do with Peltz's arrival on the share register, but the City is not convinced.

Anthony Bolton, the highly-regarded veteran fund manager at Fidelity, is fiercely critical of the Cadburys board. Writing in Monday's Financial Times, he said the group's decision to break itself up after pressure from Peltz "could represent a come-on to every corporate raider or activist investor". Bolton, who has been instrumental in forcing through change at a number of leading companies during his 35-year career, prefers the traditional low-profile City approach in such matters.

But, as a growing number of companies have discovered, today's breed of activist investor is anything but low-profile. They do not, however, have a divine right to demand change. A competent management team should have little to fear from rebel shareholders. They just need a set of shareholders who will stay loyal - and the courage to stand up for their strategy.

Tesco seed capital

A shiver went through the normally sedate world of garden centres last week on news that Tesco is making its first move into the market.

The deal - a £155 million agreed takeover of the Dobbies chain - took Tesco followers by surprise. Gardening is a new area for the group and now the City is wondering just how big its green-fingered ambitions are. Pretty big, was the general view in the market as the dust settled on the deal.

In terms of Tesco's size, it is a tiny move. Dobbies has just 21 outlets and a market share of only around 1 per cent. The price being paid is equivalent to only around two days takings at Britain's biggest retailer - but what starts off small at Tesco inevitably ends up much bigger.

Analysts drew comparisons with the group's inspired acquisition five years ago of T&S, a small chain of convenience stores.

At the time, the City struggled to see the rationale behind the move. But T&S provided the platform for Tesco to build up its successful Express store format, further increasing its share of the grocery market.

The T&S deal was cleared by the Competition Commission, although many now accept that it should have been investigated.

On the face of it, the Dobbies deal should not be subject to investigation, as Tesco is not involved in the gardening sector. But anti-Tesco campaigners are calling for a probe, arguing that the deal is the latest example of the group's growing dominance in Britain's high streets.

A promise last week from Tesco to retain Dobbies' name and separate identity was seen as an attempt by the supermarket group to avert closer scrutiny of the deal. But there is little doubt that, under its powerful new owner, Dobbies will soon become a leading force in the £5 billion a year gardening industry. Rival garden centre operators, including DIY groups such as B&Q and Homebase, have already seen their businesses come under pressure as Tesco expands its non-food ranges. They are likely to lobby hard for an investigation.

And, having been stung by the criticism which followed the green light for the T&S takeover five years ago, the competition authorities may decide the deal deserves a closer look.

Fiona Walsh writes for the Guardian newspaper in London