Activist investors have just been coming out of the woodwork over the last several days. We’ve had Elliott Management target Juniper Networks, Inc. (NYSE:JNPR). Bob Evans Farms Inc (NASDAQ:BOBE) was sued by activist fund Sandell Asset Management, which is also urging FirstGroup plc (LON:FGP) to spin off its Greyhound unit.
Activist Investors Part Two: Possible Trends For 2014
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Shares of Aeropostale Inc (NYSE:ARO) soared in premarket trading Wednesday morning after a report that the company was dealing with pressures from activists. And then there’s the whole debacle between The Men’s Wearhouse, Inc. (NYSE:MW) and Jos. A. Bank Clothiers Inc (NASDAQ:JOSB).
Activist campaigns may be on the rise
And the string of companies currently being targeted in activist campaigns goes on and on. Even giants like Apple Inc. (NASDAQ:AAPL), which is being targeted by Carl Icahn, and Microsoft Corporation (NASDAQ:MSFT), which was targeted by ValueAct Capital last year, are no longer immune to investor activism.
So are we indeed seeing an uptick in these campaigns? And if so, why? ValueWalk spoke with Jim Copland, director of the Center for Legal Policy at the Manhattan Institute, for some insight. He thinks that we could be seeing an uptick in shareholder activism, although empirical data for his view isn’t yet available.
The question will be whether the trend of the last week or two continues. Also the final data from the last few months of 2013 has not yet been compiled. But it does seem like we’ve seen at least one story involving activist investors nearly every day since the beginning of the year. In fact, activist investing has become so popular that it has crossed the pond and spread like wildfire in Europe, causing concern among law firms in the U.K. and regulators in the European Union.
Activism up slightly in most recent data
Last fall, Copland wrote an extensive post on the Proxy Monitor examining recent trends in shareholder activism. At that time, he found a slight uptick in shareholder proposals among Fortune 250 companies each year from 2011 through 2013. However, there was a marked fall-off from 2010 and the years preceding it through 2006. He examined proxy statements and no-action letters received from the Securities and Exchange Commission. Those no-action letters basically state that the SEC will not pursue legal action against a company for not including a particular shareholder proposal in its proxy ballot.
Keep in mind though, that this covers filings through August 2013, which means that the rash of activism campaigns which started later in the year would not be included in his count.
Here’s his data (image courtesy the Manhattan Institute):
As you can see, the number of shareholder proposals received per company increases when shareholder proposals not included on proxy ballots are included. Also keep in mind that this data covers only shareholder proposals and not media campaigns launched by activists like Bill Ackman, who continues to publicly decry Herbalife Ltd (NYSE:HLF) as a pyramid scheme, or the early months of Carl Icahn’s fight with Apple Inc. (NASDAQ:AAPL) before he filed his shareholder proposal.
So why the possible increase in investor activism?
If we are actually seeing an increasing trend of shareholder activism, it’s worth asking why this could be happening. According to Copland, there are two main ingredients at play: the current market environment and also corporate governance.
“The market environment, I think there’s a pretty clear explanation here,” Copland told ValueWalk. “We’re just coming out of a big, we’re in the middle of a bull-type stock market. The markets have been doing very, very well. What that means is that if you’re an investor and your strategy is to be somewhat uncorrelated to the broader stock market, but to turn around types of companies, you’ve got to look more aggressively to some degree find the underperformers and figure out how you’re going to turn those around.”
In terms of corporate governance, Copland said a combination of factors has resulted in shareholders becoming more empowered in some ways. He pointed to recent changes in rules with the Securities and Exchange Commission and the Dodd-Frank Act.
“There’s no question that there’s been an increase in shareholder power vis-a-vis board power over the last decade, and that’s come from two main areas,” Copland said. “The SEC and the regulatory, so from the Congress, and the corporate governance process itself.”
Another reason we may be seeing an uptick in shareholder activism is because of how much success these campaigns seem to bring to the funds which launch them. In 2013, activist hedge funds ruled in terms of landing the top gains. Dan Loeb’s Third Point Fund, Mick McGuire’s Marcato Capital Management and Jeff Ubben’s ValueAct Capital topped the list.
Click for Activist Investors Part Two: Possible Trends