In an unexpected development, BlackRock recently waged its first activist campaign against G-Resources Group. Though unsuccessful, the initiation of a campaign by BlackRock, a traditionally pro-company investment fund, has raised some concerns regarding the potential for an increase in activist shareholder activity by institutional investors.
In November of 2015, G-Resources Group, a Hong Kong-based gold mine reached an agreement to sell the company’s primary asset, a gold mine, to a consortium of buyers that included EMR Capital, a hedge fund whose chairman is also the vice-chairman of G-Resources Group. Because the agreed-upon transaction would constitute a sale of substantially all of G-Resources’ assets, the transaction was subject to shareholder approval. BlackRock launched a campaign to block the transaction, an effort that gained the support of both major proxy advisory firms, Glass-Lewis and ISS. However, BlackRock’s opposition to the sale was not focused on G-Resources’ vice-chairman’s interest in the transaction. Instead, BlackRock argued that the company’s decision to continue operations as a financial services firm following the sale of the gold mine marked shift in strategy for which it did not provide adequate explanation or disclosure to its shareholders.
While somewhat unprecedented, BlackRock’s activist campaign against G-Resources Group is both isolated and factually distinct. First, the campaign was waged against a mining company planning to effectively exit the commodities market by selling all of its assets and using the proceeds of that sale to enter the financial services market. In the modern era, a complete industry shift of this nature is very rare, and such a shift was most certainly not contemplated when BlackRock made its initial investment in G-Resources Group. Second, the target of the campaign was a foreign company, and its shareholder base was likely less prone to activist activity than a domestic corporation. BlackRock’s decision to engage in shareholder activism was no-doubt affected by these unique circumstances.
Because this activist approach is an outlier in BlackRock’s traditional approach to investment, and because of the unique circumstances surrounding G-Resources Group, it is unlikely that BlackRock’s activist campaign is a signal that the firm will drastically alter its approach in the future. However, the story does serve as a timely reminder for both directors and officers regarding the importance of effective shareholder engagement and communication. Companies should continue to be actively engaged with their shareholders, especially institutional investors. It is especially important for directors and officers to understand the nature of large shareholders’ investments in the company, and how future changes in approach or strategy could lead to adverse reactions and potentially shareholder activism.
Additional information regarding this development can be found in DealBook, the New York Times’ online publication covering significant corporate, private equity and banking matters, here.