As the publication of our report on activism in the first half of the year is nigh, I thought I would share some of the most interesting findings.
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The first and most notable is that activism at large cap companies boomed, especially in the U.S., where 32% of companies subjected to public demands in the first half of 2017 were worth more than $10 billion. Having written a feature on the decline of large cap companies as recently as November last year, this is chastening.
One possible explanation is that activists were sitting on a lot of dry powder and that for whatever reason, 2016 was a bad year to deploy it. Another is that with the turn in the markets, larger companies again offered positive momentum and a reasonable degree of safety. Unusually large spikes in the stock prices of CSX and Arconic seemed to confirm that markets did not believe large caps were fully valued, despite the rally late last year. Large companies probably also stood to gain more from tax reform.
Second, despite frenetic activity on the part of some funds, such as Jana Partners and Elliott Management, other big-name activists have been unusually quiet. Some, such as Carl Icahn and Pershing Square Capital Management, have admitted to trouble finding new ideas that stay undervalued long enough to build positions. Separating between the more event-driven and value-driven funds to find a rationale is hard, but CEO change and M&A have obviously been key parts of many a thesis this year.
Third, management did better in U.S. proxy fights, despite a slight increase in Institutional Shareholder Services’ support for dissidents and high-profile examples of activist successes. New leadership of ISS and its rival, Glass Lewis, may have contributed to a degree of uncertainty that saw fewer late-stage contests settle than last year.
Healthcare and industrials are becoming increasingly popular with activists, while services, technology and financials – still among the leading areas – showed signs of being too deeply mined.
With a few exceptions (see below), activity finally seems to have cooled for the summer. That does not mean the second half of the year will not be interesting. For one thing, the activists remain shareholders. How their picks perform in the second half of the year will be just as significant.
Could Europe’s companies be in for a long hot summer of activism?
Third Point Partners’ investment in Nestlé has spurred a raft of articles about the return of U.S. investors to European shores. This week has done nothing to dispel the impression.
On Tuesday, Corvex Management and 40 North Management were said to be seeking to prevent the sale of Swiss chemicals giant Clariant to Huntsman. Then, on Wednesday, Ed Bramson’s Sherborne Investors, which has a history of targeting U.K. financial companies, announced it is raising a $900 million fund (£700 million) for its next campaign. As Thursday rolled around, Scott Ferguson’s Sachem Head Capital Management disclosed a 2% stake in Worldpay, which is currently trading 10% below its peak as speculation that a bidding war might ensure dampened.
Given the performance of the dollar, which is again starting to weaken against sterling and the euro, the timing might appear ripe for a foray into European equities. In addition, M&A is soaring in Europe and declining in the U.S., according to Thomson Reuters data.
Of course, the risks inherent in European activism are still present. Bankers are scrambling to save a deal for Stada that failed due to holdouts by hedge funds hoping to push the price up. Worldpay might not find a buyer, Nestlé may resist Third Point like Unilever resisted 3G. Companies may have the upper hand, but if activists are looking for a summer escape, they will not be sitting at the beach.
Article by Activist Insight