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Source: Wall Street Journal, December 26, 2018 article

THE WALL STREET JOURNAL.


Markets  |  DEALS

Activist Investors Gain Clout as Stocks Tumble

A record of more than 280 companies around the world with market values of more than $500 million were publicly subjected to activist demands in 2018

The billionaire activist investor Carl Icahn, seen here in 2015, publicly targeted nine companies in 2018. PHOTO: VICTOR J. BLUE/BLOOMBERG NEWS

 

By Cara Lombardo

Dec. 26, 2018 7:00 a.m. ET

Shareholder activists have had their busiest year ever as market declines make companies more affordable and the investors and their tactics become more widely accepted.

A record 284 companies around the world with market values of more than $500 million were publicly subjected to demands from activists between Jan. 1 and Dec. 21, up from 252 in all of 2017, according to data provider Activist Insight. Elliott Management Corp., Carl Icahn and Starboard Value LP were the busiest, with Elliott publicly targeting 24 companies and the other two taking aim at nine each.

As activism spreads internationally, the number of non-U.S. companies attracting campaigns rose to 148 from 125, with the largest year-to-year increase in Asia, the data show.

Activists, who take stakes in companies and push them to make changes to boost their stock prices, benefited from a market that was beset by fears of rising interest rates, slowing economic growth and trade tension. For activists, who tend to make big bets on companies facing challenges, that has created opportunity.

“The market downturn makes some of our clients feel more vulnerable,” said Shaun Mathew, a partner at Kirkland & Ellis LLP who advises companies on how to prepare for and respond to activists. “It’s easier to pick on companies.”

 

In all, activists and other investors employing their techniques have secured a record 194 board seats so far this year, a nearly 42% increase from 2017, according to Activist Insight. And 64% of those board seats came from settlements negotiated with companies rather than shareholder votes, its data show, which allow both sides to avoid expensive proxy fights.

Trying to capitalize on market declines won’t prove wise if the stocks activists pick keep falling. Activist performance has already been lackluster, trailing the S&P 500 for most of the year, according to HFR Inc.

That hasn’t deterred activists like Mr. Icahn and Elliott, and they weren’t the only threats companies faced in 2018. Former executives, fed-up longtime investors and frustrated heirs showed up at companies including Sharpie maker Newell Brands Inc., review site YelpInc. and Campbell Soup Co. , some with established activists in tow.

Investors of all stripes have been more willing to pressure companies to bend to their will as money flows into passive funds and active stock managers seek any edge they can find.

Monitors display Dell Technologies signage at the New York Stock Exchange. Shareholders pressured the company to sweeten its offer when it returned to the public markets this year. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS

Dell Technologies Inc. received reams of shareholder feedback after announcing a plan to return to the public markets via the buyout of a publicly traded affiliate—including from some investors who have traditionally avoided confrontation. A public push led by Mr. Icahn and a lawsuit from the billionaire investor helped prompt Dell to negotiate a sweetened bid with several of the shareholders.

Investors are recognizing the benefits of speaking up and doing so early in campaigns, said Bruce Goldfarb, head of Okapi Partners LLC, a proxy-solicitation firm that helps activists and companies communicate with shareholders.

“It’s to their advantage to put their mouth where their money is,” he said.

Directors have come to realize that even companies largely owned by friendly shareholders aren’t immune to activist onslaughts, advisers say.

Despite a slumping stock and repeated strategic missteps, Campbell for years avoided activists, partially because a more than 40% stake owned by heirs to the soup dynasty acted as a deterrent. But in September, Daniel Loeb’s Third Point LLC teamed up with one of the heirs to launch a proxy fight to replace the food maker’s entire board.

Daniel Loeb’s Third Point got two board members on Campbell after it mounted a proxy fight against the soup dynasty. PHOTO: RICHARD B. LEVINE/ZUMA PRESS

 

The two sides engaged in a heated back-and-forth up until a few days before the shareholder vote, when they struck a settlement adding two Third Point nominees to the board and giving the fund input on another new director and on Campbell’s new chief executive.

Activists themselves are evolving, in many cases by toning down their rhetoric and elevating issues that matter to the shareholders whose support they increasingly need.

Larger activist funds such as ValueAct Capital Partners LP are giving more airtime to environmental, social and governance concerns, which appeal both to their own investors and to index-fund managers who JPMorgan Chase & Co. says control 26% of the S&P 500.

Elliott, long known as one of the most aggressive activists, established an in-house stewardship team that has softened its image and Jana Partners LLC teamed up with the California State Teachers’ Retirement System to lobby Apple Inc. to add screen-time controls. Meanwhile, activists and defense advisers have been competing to hire people with corporate-governance expertise from places like index-fund giant BlackRock Inc.

“Activism has changed in two significant ways: the convergence of active managers behaving more aggressively and activists who are behaving perhaps more benignly,” said Steven Barg, global head of Goldman Sachs Group Inc.’s activism-defense practice.

Write to Cara Lombardo at cara.lombardo@wsj.com

 

Copyright ©2018 Dow Jones & Company, Inc. All Rights Reserved.

 

 

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