Thoughts from our Domestic Equity Team
We think Shareholder Activism has become a serious market-moving event over the past few years, generally cheering shareholders and fomenting significant trading activity. In our view, social media has become one of the preferred methods of communicating an activists’ game plan to the investing world. It used to be called “talking one’s book”, but now it may more aptly be called “tweeting one’s book”, as adoring fans rush to the shares after a Twitter or other media pronouncement, and immediately the stock price rises, enhancing the value of the activists’ position.
Certainly, there are activists who do their work totally out of the spotlight and see themselves as Robin Hoods, bringing to light wasteful corporate structures and bloated expense ledgers with the aim of helping all other shareholders in distress. Over the years, many companies have come out of these battles stronger, leaner and more competitive; in short, with their activist partners, they have produced striking gains in shareholder value.
But unfortunately we are seeing many of these activists wield their power in different ways, often giving themselves a preferred position or forcing competent managements to make questionable decisions that have certainly not benefited average shareholders. The trick is to figure out which activists wear white hats and which have no more ability to manage a large complicated corporate structure than they often do in picking the right investments in their portfolios, on the long or short side.
At the moment, there are a dozen companies of size (greater than $1 billion of market capitalization) which have been targeted by activists since the start of the fourth quarter of 2013, and all are trading below the levels seen since the start of the agitation campaign. Clearly, there are other situations that have come to light during this same period which are showing positive momentum, but the mere presence of a shareholder activist does not guarantee a favorable outcome. We consider the influence of an activist or a situation that seems ripe for an activist in our investment thinking, but it is just one of many inputs we weigh, and by no means do we think such a factor assures a successful investment, especially without the myriad other considerations we seek in every investment we make.
Submitted by: Robert L. Meyer, CFA – Managing Director and Portfolio Manager
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