Citigroup Agrees to Give Activist ValueAct Details on Strategy

January 11, 2019, 7:11 PM UTC
Financial corporation Citigroup is giving activist hedge fund ValueAct more access. Thomas Trutschel Photothek via Getty Images
Thomas Trutschel—Photothek via Getty Images

Citigroup Inc. signed an agreement with shareholder ValueAct Capital Management that allows the bank to share confidential information with the activist hedge fund about strategy, governance, and planning.

ValueAct guaranteed support for the bank’s executives and board through December as part of the agreement. Analysts have wondered how involved the investor would be at the firm after ValueAct said last year that it had built a stake, noting the success of Citigroup’s treasury-services unit that provides the financial “plumbing” for many multinational corporations.

“ValueAct’s involvement with other financial companies had been relatively passive, and we had expected their involvement with Citi to be similar,” Brian Kleinhanzl, an analyst at Keefe Bruyette & Woods Inc., said in a note to clients. “However, following today’s announcement we believe that ValueAct may agitate for change.”

The information-sharing arrangement is a first for ValueAct, which prefers to have directors on the board of companies where it holds large stakes and typically keeps its investment for three to five years once it gets a seat. ValueAct holds a seat at Alliance Data Systems, a private-label credit-card issuer and a competitor to Citigroup, creating a conflict that prevents the hedge fund from seeking a Citigroup seat. When that changes, ValueAct will probably propose a candidate for the bank’s board, the companies said Friday in a statement.

“This agreement will enable Citi to work closely with one of its largest shareholders and one with unique insights and a strong track record of adding value to global organizations,” Citigroup Chief Executive Officer Michael Corbat said.

The lender’s stock climbed 1.2 percent to $57.09 at 1 p.m. in New York, making it one of the best performers in the 68-company S&P 500 Financials Index. ValueAct said Friday it now owns about 32 million Citigroup shares, or a 1 percent stake, making it the bank’s 10th-largest holder.

While the data-sharing agreement is a first for ValueAct, these types of arrangements are common when large shareholders are agitating for changes at companies. Last year, Jana Partners agreed with Jack in the Box Inc. to keep certain business information provided by the company confidential amid changes at the fast-food company.

“There are all kinds of information-sharing arrangements,” said Jim Angel, a finance professor at Georgetown University in Washington. “The real question is, What is ValueAct going to be doing for Citi?”