January 7, 2019

Activism: The State of Play at Year-End

This Wachtell memo provides an overview of the “state of play” for shareholder activism as of the end of 2018. The memo notes that the threat of activism remains high – and is a global phenomenon. Here are some of the other key takeaways:

– Activist assets under management remain at elevated levels, encouraging continued attacks on large successful companies in the U.S. and abroad. In many cases, activists have been taking advantage of recent stock market declines to achieve attractive entry points for new positions.
– While the robust M&A environment of much of 2018 has recently subsided, deal-related activism remains prevalent, with activists instigating deal activity, challenging announced transactions (e.g., the “bumpitrage” strategy of pressing for a price increase) and/or pressuring the target into a merger or a private equity deal with the activist itself.
– “Short” activists, who seek to profit from a decline in the target’s market value, remain highly aggressive in both the equity and corporate debt markets. In debt markets, we have also recently seen a rise in “default activism,” where investors purchase debt on the theory that a borrower is already in default and then actively seek to enforce that default in a manner by which they stand to profit.

While the memo says that there has been interest among institutional investors in initiatives to develop a governance framework focusing on creating long-term value and fighting short-termism, it also says that until such a framework is widely adopted, a decrease in activism is unlikely.

Speaking of a new governance framework, Wachtell recently updated its “New Paradigm” for corporate governance that the firm originally prepared in 2016 for the World Economic Forum.

John Jenkins