How Activists Use Lack Of Information To
New York (February 24, 2015, 10:07 AM ET) -- No company in the modern
era has managed to consistently leverage the unknown better than
Apple. The functional execution is
stunningly simple. Apple essentially sets a date for a “special event”
and lets the media speculate wildly for weeks. Just look at the
headlines created this past year with virtually no information to go
on: “What to Expect from Apple’s Big Event,” “Excitement Building over
New Apple Products” and “Apple Excitement Builds.”
What if instead of launching a new phone though, the company used this
same strategy to stir up anticipation prior to announcing an increased
share buyback or payment of a special dividend? Putting aside the
logic of such an approach, the strategy of purposefully building
excitement in the market ahead of a financial announcement would
certainly strike many as highly unusual or even illegal. What if the
company were more direct in the pre-announcement marketing, saying
“tomorrow’s announcement will be the most important one in the
company’s history?” Certainly that would set off a few alarms.
Yet this is exactly what some shareholder activists are doing. Armed
with well-known brands of their own, certain “celebrity activists” are
using their public personas to mimic this product PR strategy in
campaigns to force corporate change. With a stock market that reacts
on bits and pieces of information from these activists, targeted
companies are confronted with an uneven playing field that creates
significant challenges in designing defensive measures.
Last October, Carl Icahn, perhaps the most famous activist, tweeted
“Tmrw we’ll be sending an open letter to @tim_cook. Believe it will be
interesting.” The tweet went out at 2:33 p.m. EDT on a Wednesday, 90
minutes before the markets closed in the United States. Pershing
Square’s Bill Ackman more recently stated that his attorneys held
evidence showing clear stock manipulation at one of his targeted
companies. Several trading days later, the documents were filed, and
after reviewing them, The
New York Times declared there was
no “smoking gun.” In a more unusual example, a relatively new hedge
fund, Kerrisdale Capital, recently hosted an online poll asking the
public to guess which of two public companies it would target when it
presented a detailed short case in the coming days.
These are all unequivocally incomplete statements and actions designed
to create a reaction with the broader public and, it seems, in the
public equity markets. In fact, the result of each one of these
actions was at least a momentary stock price movement that favored the
activist’s position, either long or short.
The longer-term impacts are not immediately clear, but based on
comments from Kerrisdale’s leader, Sahm Adrangi, the hedge fund
community has noticed the power of celebrity and values its impact. In
a New York magazine profile, he stated he is “realizing that the more
profitable route, in the long run, might be to turn himself into a
brand, go on CNBC, get some gravitas, and start picking fights.”
There is a debate to be had by legal experts about the particular
application of rules on financial disclosure in this area. However, in
the near term, for a number of reasons (not all of them rooted in the
law) the simple fact is that companies do not share or utilize this
Emboldened by an enormous influx of funds and several high-profile
“wins” over the last several years, activists have increasingly honed
their communications strategies to shift public perception broadly
while also gaining tactical victories against targeted companies.
So how can a corporate board effectively defend itself against these
Speed and clarity are critical in any successful defense. A savvy
activist can solidify a public narrative about a target with
astonishing speed. To be ready, management teams and boards are
increasingly conducting their own stress tests before an activist ever
arrives, often holding in-person sessions with full adviser teams to
battle-test different scenarios and vulnerabilities.
This does not mean reviewing or creating a standard playbook.
Constantly shifting tactics of attack mean preparation also needs to
These sessions must consider all potential tactics from the activist
at each level of engagement. How would a tweet be managed? What about
a passing reference on CNBC? A “sources familiar” story in The New
York Times? Investor opinion can be swayed long before any U.S.
Securities and Exchange Commission
filing. These training sessions help define messages and, the equally
important functional teams, in the event of an activist approach. The
end result has to be a focus on speeding up response times.
The best boards take this further. They understand potential
weaknesses, thoroughly evaluate how to alleviate each point and, where
possible, proactively take action. In the midst of a fight with an
activist, this history of action can prove invaluable in not only
disarming potential accusations, but more importantly enabling the
company to move rapidly and decisively to answer shareholders.
History is showing that companies that move quickly and with
conviction prevail far more often than those that do not. Many
companies have been served well by preempting activist announcements,
where possible, and reinforcing corporate strategies early. This then
gives third-party supporters a more attractive opportunity to voice
Activists’ new celebrity status drove a staggering 73 percent success
rate in 2014. In an environment in which activists are winning with
such frequency, companies need to consider new principles for activism
defense, grounded in both a deep understanding of investor relations,
a current view of market dynamics and an equally inventive approach to
—By Patrick Tucker, The
Abernathy MacGregor Group
Pat Tucker is a senior vice
president at financial communications firm Abernathy MacGregor, where
his work focuses on advising companies on communications matters
surrounding M&A, shareholder activism, litigation and other corporate
The opinions expressed are those of the author(s) and do not
necessarily reflect the views of the firm, its clients, or Portfolio
Media Inc., or any of its or their respective affiliates. This article
is for general information purposes and is not intended to be and
should not be taken as legal advice.
 According to data from FactSet’s SharkRepellent. Success rate is
measured by the number of outright victories, partial victories or
settlements by the dissident as a percentage of all proxy fights where
an outcome has been reached.
© 2015, Portfolio Media, Inc.