DealLawyers.com Blog

February 4, 2016

Activist Activity: Three Perspectives

On the heels of the NACD’s annual survey of more than 1,000 directors, which found that more than 20% of respondents’ boards were approached by activist investors during the past year – yet 46% of those surveyed have no plan in place for responding to activist investor challenges – comes this Reuters article that says companies are settling with hedge fund activists at the fastest pace since the financial crisis. Then there is this WSJ piece entitled “Are Activist Investors Helping or Undermining American Companies?” – here’s an excerpt from that:

The Journal looked at 71 campaigns against companies with market capitalizations of more than $5 billion over a period dating back to 2009, the start of the surge of agitation. The review studied changes at these companies in earnings, margins, corporate spending, employee efficiency and shareholder return versus peers. The resulting data bolster the increasingly popular conclusion that the best corporate response to activism isn’t for a board or chief executive to reactively shun an activist, or to completely acquiesce to any demands. Instead, companies may be better off analyzing each proposal, and the track record of the activist making it, some advisers say.

“The focus is changing to whether the idea is good or bad,” says Avinash Mehrotra, co-head of Goldman Sachs Group Inc. ’s activism defense and shareholder advisory group. One key factor in judging an idea’s merits, he said, is the time frame an activist is demanding. The review shows that shares of large companies confronted by activists are more likely to outperform stocks among their industry peers than they are to underperform. But the differential isn’t great. Slightly more than half, or 38, of the situations in the Journal study led to better shareholder returns than industry peers for the period studied after the activist went public. In the end, the median campaign beat peers by just under 5 percentage points.