Shareholder activism has metamorphosed in the U.S. whereby any public company could be a potential target, notes The Harvard Law School Forum.
Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation in the recent blog notes in 2013, the number, nature and degree of success of activist campaign gained increased attention, particularly in the well-known large market-capitalization companies.
Has including ESG become a necessity for investors?
ESG (environmental, social, governance) has become a hot topic in recent years, especially lately with the debate over whether pension funds should be able to factor in ESG when choosing investments. At Morningstar's recent conference, the firm argued that ESG has become a requirement for long-term investors. Q2 2020 hedge fund letters, conferences and more Read More
Factors Aiding Activist Accumulation
Noam Noked attributes several factors contributing to the accumulation of shareholder activism. The activist shareholder is provided with ‘dry powder’ through increased investment in activist investor funds by institutional investors looking for alpha returns.
The activist shareholders are now adopting a more professional approach by engaging financial and legal advisors besides adopting a long-term involvement with the target companies, as opposed to their earlier short-term perspectives.
The shareholder activism no longer carries the stigma among the institutional investors. Now, they view the activist investors as a useful tool to agitate at underperforming companies in their portfolio.
The increased media attention is also providing sufficient opportunity as a low-cost route to pressurize companies.
Noam Noked notes some activist shareholders have turned into ‘operational activists’ where they will roll-up their sleeves to fix responsibility on underperforming companies.
Noam Noked also feels shareholder activists have sharpened their tactics to pressurize target companies’ board to consider various strategies including enhancing dividend / share buy-backs, sales of companies’ assets.
For instance, the hedge fund Scout Capital Management recently intensified its demands on Tim Hortons Inc (NYSE:THI) (TSE:THI) to boost its share repurchase program by optimizing its capital structure.
Carl Icahn the activist investor, suggested Dell Inc (NASDAQ:DELL) to begin a $14 per share tender offer, which was rejected by the PC maker’s special committee.
American activist investor Daniel S. Loeb demanded music and movie arm of Sony Corporation (NYSE:SNE) (TYO:6758) be sold, which was rejected by the company.
Public Companies Should Guard Against Shareholder Activism
Noam Noked in the blog suggested a few mechanisms to help public companies protect against activist accumulation. For instance, companies can keep track of ownership reporting on SEC forms, scan through the usual early warning signs emanating from 13F, 13D and HSR filings, have in place periodical shareholder outreach programs, adopt a comprehensive advanced communications plan articulating a credible value creation plan shareholders.
Noam Noked feels all the above strategies would help companies mitigate the risk of an activist campaign.