Egyptian tycoon Nassef Sawiris has formed a partnership with US investor Mason Hawkins and his colleagues at Southeastern Asset Management to drive change at companies they invest in: and they have sportswear firm Adidas in their sights.
The long-term venture between Sawiris and fellow billionaire Hawkins, founder of the employee-owned global investment firm, combines their personal wealth as well as cash from third-party investors, according to a source familiar with the matter.
The new entity – Southeastern Concentrated Value (SCV) – plans to build stakes in up to 10 European companies it deems to be underperforming – to spur boardroom revamps and influence strategy, the source said.
It could set its sights on Germany's Adidas, which has struggled to keep pace with bigger rival Nike in recent years and is currently looking for a successor to veteran CEO Herbert Hainer.
Sawiris is already independently invested in Adidas via NNS Holding, which owned 1.74 percent of the share capital as of October 30, according to Thomson Reuters data, and around 6 percent of voting rights via a number of options. Southeastern has publicly filed as holding over 3 percent of the company. The stakes were built up this year.
A spokeswoman for Southeastern confirmed the existence of a partnership comprising Hawkins, Sawiris and some of its senior staff, but declined to comment further. Sawiris declined to comment.
Sawiris' and Southeastern's interest in Adidas comes at a critical juncture for the Bavaria-based company. The German-dominated board is seeking a new boss who can help restore its fortunes in the US market, where sportswear trends are born.
Many fund firms have demanded a greater say in how companies are run since the financial crisis, after clients accused them of charging high fees but failing to hold board members to account for weak strategy, poor profits or excessive pay.
But investor-led campaigns for change can be stymied by the varying requirements of their clients, in terms of how soon they expect to see returns. Fund firms must often sell shares to return capital to clients before long-term change is fully implemented.
SCV, which will be advised by Southeastern's London office, is expected to focus on six to 10 companies at any one time and its partners hope their long-term collaborative approach will maximize shareholder influence, the source said.
Sawiris, the youngest scion of one of Egypt's richest families and Southeastern, the investment firm set up by Hawkins 40 years ago, have already cooperated as independent shareholders to significant effect at several large firms.
These include US construction supplies firm Texas Industries and cement and aggregates firm LafargeHolcim .
During the protracted merger of Holcim and Lafarge, Sawiris, with the support of major shareholders, including Southeastern, was instrumental in pushing for Lafarge management to retain positions of influence in the combined merger.
The appointment of Lafarge veteran Eric Olsen, a dual French and American national as CEO, was welcomed by Southeastern, partly because it believed he had the necessary skills and cultural sensitivity to unite factions in both the Holcim and Lafarge camps.
SCV's largest holding is in Swiss chemicals company Sika , the source said, without disclosing the actual size of the partnership's stake.
According to public filings, Southeastern owns just under 4 percent of the company, and is supporting Sika's management and board in their opposition to the sale of the Burkhard family's 16-percent stake to France's Saint-Gobain at an 80 percent premium without a concurrent offer to other shareholders.
SCV is primarily focused on making sure the companies it backs have the best management and boards in place to deliver on operational strategy and intelligently allocate capital over the long-term, the source said.
This, the source added, sets it apart from activist investors, who often try to dictate company business or demand asset sales and mergers and acquisitions in the short-term.
Both Sawiris and Southeastern have declined to comment on their objectives for Adidas, apart from saying that they are in "constructive" dialogue with management.
Adidas declined to comment on Friday, but pointed to comments made by CEO Hainer last month when he said the company was open to listening to shareholders.
"Hainer's rule has been reined in by the arrival of new investors who the board cannot ignore," said Ingo Speich, fund manager at Union Investment, which owns a 0.75 percent stake.
The firm already seems to be responding. Adidas said in August it was considering the possible sale of its golf brands, as demanded by some investors. It recently raised its full-year outlook for sales and profits and said it should be able to repeat the performance next year.
After underperforming Nike for the last two years, Adidas shares have soared in recent weeks and are up 57 percent this year, compared with a 34 percent rise for Nike.
But they still trade at a 17 percent discount to the US firm, seen by analysts as justified given consistently lower profitability and growth.
Adidas expects its sales to rise by almost half to above 22 billion euros by 2020; Nike said last month its sales to rise 63 percent to US$50 billion by then.
The Adidas board said in February it was looking for a successor to Hainer, who has been in office since 2001 and is the longest-serving boss of a major listed German company.
But it seems to be in little rush to end the uncertainty at the top, particularly as Hainer's contract runs until 2017.
Global brand chief Eric Liedtke is seen as the top internal candidate, although some industry experts say the board is still looking seriously at external candidates. Henkel boss Kasper Rorsted and Amer Sports chief Heikki Takala have been touted as possible candidates in media reports.
"We believe it should be an external candidate to break the Hainer system," said Speich, who has long been an outspoken critic of Hainer.
Some investors want the new boss to focus on the Adidas brand, push ahead with a sale of the golf business and also consider a disposal of long-struggling fitness label Reebok, acquired in 2005.
"They should focus on the core brand and split off or sell the others," Speich said.