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Daily Telegraph: Knight on a crusade to liven up giants

EXTRACT: Among the corporate actions for which his blend of activism has been responsible was the abolition of Royal Dutch Shell’s dual share structure in 2004. That, according to people who know Mr Knight, was the moment that he became a force to be reckoned with in boardrooms across Europe.

THE ARTICLE

By Mark Kleinman, in Hong Kong
Last Updated: 1:03am BST 11/09/2007

From his room at the luxurious Mandarin Oriental hotel in Hong Kong last weekend, Eric Knight had a clear view of the Norman Foster-inspired building that was once HSBC’s global headquarters.

Mr Knight’s vista was almost uncannily apt. The 49-year-old chairman of the asset management firm Knight Vinke and veteran of what he refers to as “moral suasion” has his sights firmly trained on the world’s fourth-largest bank.

“HSBC has been a perennial underperformer [by total shareholder return], whether you look at it going back over two, three, five, nine, 10 or 12 years,” he said. “The brief moments of strong performance do not compensate for what has generally been a poor return for investors.”

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Mr Knight, a Dutchman by birth who divides his time between New York and Monaco, outlined his criticisms of HSBC – which the bank strongly rejects – over a breakfast of coffee and muffin yesterday. He was dressed in a sharp navy suit, white shirt and brown tie and had, he said, been awake much of the night making calls to the US and reading documents about the situation.

He will need all the energy he can muster for what could be a protracted tussle with one of the world’s largest companies. But Mr Knight has been charging into this kind of battle for years – and he usually gets what he wants.

Among the corporate actions for which his blend of activism has been responsible was the abolition of Royal Dutch Shell’s dual share structure in 2004. That, according to people who know Mr Knight, was the moment that he became a force to be reckoned with in boardrooms across Europe.

Since then, intense pressure from Knight Vinke on the board of Suez, the French utility, forced it to abandon a merger with Gaz de France and buy out minority investors in Electrabel, its Belgian electricity subsidiary. Last year VNU, the Dutch media group, backed down over a $7bn acquisition and ended up being sold to a private equity consortium after Knight Vinke came knocking at the door. Both campaigns reaped healthy returns for Mr Knight and his investors.

For all his record of victories, Mr Knight does not look like a man prepared to lock horns with the world’s corporate titans. Speaking so softly that he occasionally struggles to be heard across the table, his quiet demeanour does not disguise the fact that, as he admits, he finds what he does “exciting”.

Knight Vinke’s approach is unlike many of its peers in the often opaque world of boardroom agitation, because it tends to target only the largest public companies.

“It is a very hard way to make a living. Dealing with large-caps is far more political,” he said. “You cannot be someone who just backs off under pressure.”

Yet Mr Knight insists that he and his firm are not aggressors. Mr Knight’s allies in the HSBC situation include Calpers, the Californian public pension fund, which ranks among the world’s biggest investors of retirement money. This morning, he will arrive in London on an overnight flight from Hong Kong to meet HSBC investors and analysts.

He said: “It would be a mistake to confuse what we do with what the agitators do. This is not about making a short-term play on the share price or insisting on a break-up. We have already spent hundreds of thousands of pounds on this project. We would not have done that if we did not believe in HSBC’s potential.”

Mr Knight earned his spurs at Merrill Lynch, but at the age of 30 he decided he “did not want to work for a large organisation any more”.

He left and, later, founded Knight Vinke along with two other companies focused on activist investment management.

He believes there is huge appetite among investors for the type of work that Knight Vinke does but little in the way of serious competition to achieve it.

“Large-caps are slow-changing and slow to move but the world is changing so fast. Look at the impact of generics on the pharmaceutical industry, of currency swings, of the rise of India and China,” he said. “Look at a utility which 10 years ago was like a bond in terms of the stability of its cashflows. Now many of them are like commodity plays. And yet the same analysts are covering the same stocks now as 10 years ago.”

Stephen Green, executive chairman of HSBC, might prefer that Mr Knight does not come any closer to the banking giant than the view from his hotel window. But like the architects of most successful battles, this “quiet assassin” seems fully prepared to bide his time.

“It took us three-and-a-half years to get what we wanted with Suez,” he said, getting up to prepare for what could prove to be a long journey ahead.

“We have only just started with HSBC.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/11/cnhsbc311.xml
 

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