Activist Investors: Who They Are, What They Do, and Why It Matters

Activist investors can be helpful catalysts for change in stagnant or mismanaged companies. Watch this video explaining how Paul Singer, the activist investor, made his money. In turn, this will place companies under pressure to prove they can deliver adequate organic growth to stave off prying eyes of any activists keen on pushing M&A as a faster and more rewarding way of delivering growth. One of Corvex’s most successful https://forexbox.info/ activist endeavors was at Yum! Brands in 2015, where Meister gained a board seat and convinced the company to spin off its Chinese division. Corvex also successfully pushed Energen to sell itself to Diamondback Energy in 2018. In July of 2017, the company unveiled a massive plan to restructure its business, a plan that ended up freeing up billions of dollars and leading to return of value to investors.

Despite its market leading position, Clear Channel’s shares have seriously underperformed since its separation from iHeartMedia in May 2019. CCO is currently trading 79% below the pre-deal share price and 65% below its peers since the separation. CCO’s underperformance has been linked to several factors, but is largely driven by the company’s high leverage, which amplifies volatility, and the sub-optimized conglomerate structure, which increases complexity.

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Unlike private equity firms that buy and restructure companies in order to profit when they are resold, activist investors seldom acquire full or majority stakes. Instead, they use public communications and private discussions to win over other shareholders and company insiders. When such efforts fail, an activist investor may pursue a proxy contest to elect new directors in order to force the company to meet their demands. The approach of a traditional value investor relies on company management, industry experts, or Wall Street research to provide relevant information regarding progress towards the value investor’s investment thesis. Decisions regarding investments are often the result of “reacting” to news or developments concerning the company. Activist investors, however, adopt a drastically different approach — acquiring a significant stake in the undervalued equity of a target company and then promoting a specific plan for unlocking value.

Activist investors launch campaigns against companies for several reasons, whether to protect an existing investment or because it has invested specifically to push for change. A company with steady cash flow combined but with low returns on https://forexhistory.info/ equity may draw the attention of an activist investor that advocates improved operational efficiency and increased cost costing measures. Activist shareholders made public demands of 886 companies worldwide in 2021, according to Insightia.

Notable investors

Activist investing is a unique form of value investing targeting companies that have significantly underperformed their peers or the overall market for a considerable period of time. Activist investors make substantial minority investments in the common stocks of such companies with the stated intent of influencing company management to take specific steps to increase shareholder value. An activist identifies the causes and sources of a company’s chronic underperformance and recommends strategic, financial, operational or organizational changes that may provide a catalyst for increasing the value of the company’s shares. The methods and tactics activist investors take when targeting a company may vary depending on their goals and objectives. Some shareholder activism objectives are targeted for long-term change, while other strategies are used for more rapid change. Shareholder activism tactics and methods to targeting a company can range from less to more aggressive, depending on the status of the company and the activist investor outlook.

Your portfolio can benefit from this type of exposure, but limiting how much money you invest in activism-related strategies is a wise move. Value investors analyze certain business fundamentals to identify those companies that are undervalued. An activist investor’s recommendations can range from strategic initiatives, such as restructuring the company, to changing the composition of the board of directors.

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One way to measure the success of an activists’ campaign is how many board seats they win, but investors aren’t limited to changing the board. Activists can try to change everything from the company’s spending and investment to their stance on social responsibility, as long as they are backed by shareholder support. Activist investors can influence corporate governance if they purchase enough shares to hold a controlling position. Once they achieve this, activist investors can begin to push for change in corporate governance by challenging board of directors seats and replacing them with people they see fit. These two types of activism are very different to one another, and have a different impact on company share prices. Sometimes activist investors ploughing money into a business can be beneficial to share prices, whereas an activist shorting a stock is rarely good news for a stock’s value.

There are some activist investors that are dedicated to the cause and only invest in companies with a view of seeking change, while some use it as a tool within a wider investment strategy. A hedge fund, for example, may primarily follow an investment strategy and only undertake shareholder activism when necessary, such as when its existing investments are under threat by mismanagement. Headlines in business media are virtually guaranteed through aggressive publicity campaigns, provocative shareholder resolutions, or drawn-out proxy battles. Other activists however (including Olstein Capital Management), shun a hard-edged, confrontational approach to pursue “behind-the-scenes” communications that underscores the perspective of an investor with capital at risk. Activists that pursue cooperative interactions with a company often find its board of directors and management interested in their insight and recommendations and open to a constructive engagement that seeks to increase shareholder value.

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Sometimes the goals of the high-profile activist are different from the goals of the company or the average retail investor. An activist investor is a major investor (generally someone at the head of a fund or firm) who buys shares of a company’s stock with the goal of changing its policies or leadership. For example, an activist investor might want to oust a company’s CEO, close down branches or streamline the whole business model. Investing in either of these funds, or in any individual companies that are targeted for activism, is riskier than just buying and holding the stocks of high-quality companies.

• CCO’s underperformance has been linked to several factors, but is largely driven by the company’s high leverage, which amplifies volatility, and the sub-optimized conglomerate structure, which increases complexity.
• Activist investors can either promote M&A to the company it is invested in, or it can be against it – blocking a deal because it believes the return on their investment should be higher or promoting a deal to monetise and exit its investment.
• In 2013, Icahn also played a role in pressuring Apple to return some capital to shareholders by performing a share buyback and issuing dividends.
• These firms use proxy advisory firms such as Institutional Shareholder Services to receive recommendations on how to vote on shareholder proposals.
• Typically, activist investors operate hedge funds or private equity firms, or they are high-net-worth individuals.

She has worked in multiple cities covering breaking news, politics, education, and more. Sycomore had been pushing to remove Meunier and install Apotheker, saying that it didn’t seem appropriate to keep “one of the historical players at least partly responsible for the governance crisis of the group.” Earlier this month, Cyril Charlot, founding partner of Sycomore, https://day-trading.info/ and Schneider Electric director Leo Apotheker, criticized Atos’s board in comments to French newspaper Le Figaro. FinanceBuzz is an informational website that provides tips, advice, and recommendations to help you make financial decisions. We strive to provide up-to-date information, but make no warranties regarding the accuracy of our information.

What are activist investors and how do they work?

It would be wise for investors big and small to keep this possibility in mind when listening to an activist. Activist investors may have sound ideas about how management can use the company’s assets better, improve its operations, or enhance shareholder value. An activist shareholder attempts to gain control of a company in order to pressure its management into making changes or replace its management outright. CCO first announced its strategic review of the European business in December 2021 and very little has come to fruition. It is unclear why this is and what the logjam is, but if it continues, Legion will want to be inside the boardroom to get a better look. Legion has shown in the past that it has no hesitancy in soliciting proxies if it feels that is necessary.