MEXICO CITY/LONDON (Reuters) - A subsidiary of Standard Life Aberdeen Plc, one of the world’s largest asset managers, is pressuring a Mexican airport developer to change its shareholder structure, three years after unsuccessfully trying the same strategy in a similar investment.
It is a rare move in a region where activist-style investments are notoriously difficult, and where Aberdeen Standard Investments itself has a mixed track record, having previously taken on two of Mexico’s largest companies.
Fiona Manning, a senior investment manager at the $646 billion asset manager, said the shareholder structure of Mexican airport operator Aeroportuario del Sureste (Asur) was no longer adequate and that her team was pressing for an extraordinary general meeting to allow shareholders to vote.
Asur’s control structure comes with two share classes and a technical assistance fee - 5 percent of earnings before interest, taxes, depreciation and amortization - that it pays to the controlling shareholder.
Inversiones y Técnicas Aeroportuarias, a strategic partner of Asur, is the controlling shareholder and is owned by Mexican tycoon Fernando Chico Pardo and Mexican bus transportation company ADO.
This type of control structure was first introduced in the country more than two decades ago when the Mexican government privatized airports and needed the expertise of foreign investors.
“These businesses no longer require the same level of expertise coming from outside of the businesses,” said Manning, adding that the fee should be scrapped altogether. “We feel that now it is an appropriate time to challenge the structure of these businesses.”
Asur, ADO and representatives for Chico Prado did not respond to requests for comment.
The Ministry of Communication and Transport of Mexico lists 76 airports in its directory, nine of which are operated by Asur, including the one in the popular Mexican beach resort of Cancun.
The investment team tried the same strategy three years ago with Grupo Aeroportuario Centro Norte (OMA), which operates 13 Mexican airports, including in Monterrey, the capital of the wealthy border state of Nuevo Leon. But Manning said its resolution did not win the required votes of at least 50 percent plus one shareholders from the non-control group.
However, she added there was a realization within the controlling shareholders and OMA that some of its points were valid, and the technical assistance fee was subsequently reduced to 4 percent and then 3 percent.
Technical assistance contracts are not unique to Mexico or the aviation industry, but Manning said it was unusual to keep them in place for such a long time.
She said Corporacion America Airports, which operates airports in Argentina, Armenia, Brazil, Ecuador, Italy, Peru and Uruguay, had such a structure but decided it was not needed any longer.
While shareholders get no direct benefit from the cancellation of the fee, it amounts to a hidden tariff for passengers and airlines that use the airports, which Manning said could hinder overall growth and ultimately earnings.
Activist Insight, which tracks demands publicly presented by investors, has recorded just three campaigns across all of Latin America during 2016.
Asset managers often say they prefer to engage privately with companies over contentious issues to maintain relations with the board. They only escalate to a more public forum if talks prove unsuccessful.
Manning said Aberdeen Standard Investments has pursued between six and ten activist-style investments across its entire emerging market portfolio.
In Mexico, it took on Fomento Economico Mexicano (Femsa), the world’s largest franchise bottler of Coca Cola products, as well as the country’s largest local bank Grupo Financiero Banorte.
However, Manning said both of its proposals were unsuccessful.
Femsa shareholders rejected the idea of a change in the share structure, voting to keep the preferential dividend that the current structure offers.
Meanwhile, shareholders of Banorte voted in favor of the proposed acquisition of Grupo Financero Interacciones, which Standard Life sought to prevent.
The companies did not respond to requests for comment.
Asur and Grupo Aeropuerto del Pacifico, another large airport developer, outperformed the Mexican market year to date through Feb. 9 while OMA slightly underperformed, according to Thomson Reuters data.
“We don’t see ourselves as activist investors. There is a subtle difference in that we buy what we think are good quality companies,” Manning said.
“So, for us, a company has to meet a minimum threshold before it is investable. Then, we would be looking on how we can improve it.”
Reporting by Stefanie Eschenbacher and Simon Jessop; Editing by Jeffrey Benkoe
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