Threat of rebellion as activist investor joins Rolls-Royce board

rolls royce

In a move that has taken aback leading institutional investors such as M&G and Standard Life, Rolls has appointed a representative of ValueAct Capital, the San Francisco-based activist investment group as a director, reports The Times.

The appointment of Bradley Singer, the chief operating officer of ValueAct, follows the US investor raising its stake in Rolls-Royce to 10.8 per cent, making it the British aerospace and engineering group’s largest shareholder.

ValueAct has gained notoriety as an agitating investor, with a strategy of gaining seats on boards to effect change. Its behind-the-scenes pressure at Microsoft is credited with the 2014 departure of Steve Ballmer as chief executive. Privately, ValueAct claims that generally it is a long-term investor in companies it rates but whose shares have fallen on stock markets.

Over the past two years, five profit warnings, the departure of a chief executive, a halving of the dividend and a warning of a halving in earnings have led to Rolls-Royce shares collapsing, at one stage losing more than 50 per cent of their value. During that time ValueAct is reckoned to have spent in excess of £1 billion building its stake.

Ian Davis, the former head of the consultant McKinsey who is Rolls-Royce’s chairman, said the appointment of Mr Singer had made some shareholders “uncomfortable” and confessed that others such as M&G and Standard Life had expressed “unease”.

Both institutions have declined to comment.

However, one leading fund manager who preferred not to be named said that investors did have issues with the Rolls appointment. “Representational directors can be difficult and as a rule we are not in favour of them,” the City investor said. “We prefer that directors speak on behalf of all shareholders. To have one set of shareholders represented on the board can corrupt the normal relationship between the board and the rest of the shareholders.”

Rolls and ValueAct have signed a “relationship agreement”, in which ValueAct’s representative on the board “must offer to resign” if ValueAct’s stake falls below 7.5 per cent.

Mr Singer played down ValueAct’s reputation for aggression, saying that he wished to work closely with Rolls’ management to help to “execute their plans for sustained long-term success”.