Whenever an activist investor considers his next target, he undoubtedly considers many factors in the process. A recent study conducted by PricewaterhouseCoopers indicated that activists often target companies with low market value relative to book value, good operating cash flow and assets, a huge cash hoard, and underperforming divisions.
However, now Activist Insight has identified another factor activists may consider when looking for their next target.
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Activists seek unhappy shareholders
The firm’s Proxy Insight found that most companies that have found themselves targets of activist investors this year saw shareholders rebel at last year’s general meetings. In coming up with this conclusion, the firm analyzed the voting results from last year’s meetings of 131 companies that have been targeted by activists so far this year but that didn’t have a proxy contest last year. The purpose was to weed out companies that were already being targeted last year.
Proxy Insight reported that about 63% of the companies had one or more resolutions with more than 10% opposition at their annual meetings last year.
What boards should worry about
Further, Proxy Insight learned that it didn’t really matter whether shareholders opposed resolutions related to compensation or the re-elections of directors. Each of these two issues made up about the same share of the activist targets that saw shareholder opposition in 2014.
The firm reports that 66% of the companies with over 10% of the votes being against or withheld on compensation resolutions became activist targets, while 65% of the companies saw the same opposition levels to one or more directors.
Proxy Insight suggests that activists may be looking for companies which already have shareholders that are getting impatient with how things are going. This certainly does make sense, as activists looking to rock the boat at any company need to drum up support for their proposals, and it’s easier to do that if shareholders are already unhappy.
“Activist investors rely on the support of the wider shareholder base to apply pressure to their targets,” said Proxy Insight Managing Director Nick Dawson in a statement. “Companies who receive even relatively modest opposition at their shareholder meetings must appreciate they are likely to be on an activist’s radar and should seriously engage with their current shareholders to bring them back onside.”