11 Activist Investors Who Have Shaped The Market
There has been a heated debate on Wall Street as to whether activist investors are beneficial to both shareholders and companies. Over the past few years, activist investing has taken off, with several big name players pushing for change at some of the world's largest companies.
While some argue that the involvement of activist investors often creates value for shareholders and improves firms' operations, others say their bullying is usually shortsighted and that they don't have the company's best interests at heart.
The Influence Of Activist Investors On Shareholder Returns
A recent study by the Wall Street Journal showed activist investors' proposals can often benefit the firms they are targeting – if management is open to considering new possibilities. After studying 71 cases of shareholder activism, the data showed companies approached by an activist are more likely to outperform their peers in the same industry.
However, the results showed a positive outcome was only slightly more likely than a negative one. Only 38 of the 71 outcomes studied ended with better shareholder returns. While those figures suggest the merits of shareholder activism justify the rise of the practice in the United States, others say the benefits are minimal and the short-term focus activist shareholders have can persuade CEOs to make poor decisions.
Activism Debate Unlikely To End Any Time Soon
The debate is likely to continue for years to come; the involvement of shareholders in a company's operations appears to be increasing. In recent years, outspoken fund managers have caused several corporate shakeups that resulted in massive gains for shareholders, something that has rallied support for shareholder activism.
In any case, investor activism appears to be a trend that will remain on Wall Street for some time. Here's a look at some of the most well-known activist investors and the market-moving deals they orchestrated.
Carl Icahn is perhaps the most famous activist investor, as many of his stunts have caused a great deal of commotion among investors. The billionaire led several unsuccessful attempts to break up firms like Time Warner Inc (NYSE: TWX) and Yahoo! Inc. (NASDAQ: YHOO), but he is best known for his successes.
He recently convinced Family Dollar Stores, Inc. (NYSE: FDO) to put itself up for sale, resulting in a bidding war between discount rivals Dollar Tree, Inc. (NASDAQ: DLTR) and Dollar General Corp. (NYSE: DG).
Icahn also convinced tech giant Apple Inc. (NASDAQ: AAPL) to use some of its spare cash to conduct a $90 billion stock buyback.
Bill Ackman is another activist investor whose public outbursts have made headlines. His 2014 feud with Icahn over Herbalife cast Ackman in an unfavorable spotlight, but the Pershing Square Capital CEO has also proven himself to be a market force.
In 2013, Ackman made an estimated $485 million after using his 1 percent Procter & Gamble Co (NYSE: PG) stake to shake up operations at the company. His open criticism of CEO Bob McDonald eventually led to his departure from the company.
Daniel Loeb has been known for his "poison pen" on Wall Street; the Third Point CEO often writes insulting letters criticizing the management at companies he's set his sights on.
In 2012, Loeb began questioning discrepancies on Yahoo CEO Scott Thompson's resume after his firm acquired a 5 percent stake in the company. Eventually, Thompson resigned, and Yahoo gave Loeb three board seats. Loeb left the Yahoo's board less than a year later and sold his shares in the firm for a large profit.
David Einhorn is an unusual type of activist investor whose tactics tend to be much less aggressive. His reputation has given him a great deal of clout on Wall Street, and his public statements have been known to move markets.
In October 2011, Einhorn accused Keurig Green Mountain Inc (NASDAQ: GMCR) of several transgressions and announced that he'd taken a short position. The company's shares immediately began to tumble, eventually losing around 52 percent. Einhorn and his firm Greenlight Capital were also involved in Icahn's efforts to persuade Apple to return value to shareholders with a buyback when he suggested that the tech giant create a preferred stock plan.
Nelson Peltz is best known for his battles in the boardroom, often calling for management shakeups at companies he is interested in. Peltz's most famous shakeup happened in 2011, when his firm Trian Fund Management disclosed its stake in Kraft Foods.
Together with Pershing Square Capital, Trian pushed the firm to break up, which it eventually did in 2012. Kraft separated its grocery business, which kept the Kraft name, from its snack foods arm, which became Mondelez International Inc (NASDAQ: MDLZ) and went on to merge with H. J. Heinz Co. to form Kraft Heinz Foods Co (NYSE: HNZ).
Unlike many of his peers, Barry Rosenstein has flown under the radar to drive market-moving change. His firm Jana Partners typically works together with companies to make operational changes and isn't seen as an external threat.
Jana was behind PetSmart, Inc. (NASDAQ: PETM) sale to BC Partners in 2014, and he persuaded Safeway Inc (NYSE: SWY) to rework its operations by giving up its stake in Blackhawk Network Holdings and abandoning underperforming regions in 2013.
Jana was also an integral part of Marathon Petroleum Corp (NYSE: MPC)'s decision to conduct a $2 billion stock buyback in 2012.
Paul Singer and his firm Elliott Management have been a force to be reckoned with in the tech space. Singer began a proxy fight for board seats at BMC Software, Inc. (NASDAQ: BMC) in 2012, which ended with Elliott Management taking over two seats. The firm then pushed BMC to consider a sale to be taken private by Bain Capital LLC, Golden Gate Capital and Elliott Management, which it eventually agreed to in May 2013.
Elliott also worked together with Jana Partners to push Juniper Networks, Inc. (NYSE: JNPR) to carry out management changes and conduct a stock buyback.
Jeff Smith and his firm Starboard Value have been behind several corporate shakeups, including office supply superstore Staples, Inc. (NASDAQ: SPLS) decision to acquire Office Depot Inc (NASDAQ: ODP) for $6.3 billion in 2015.
However, Smith is best known for his takeover of Darden Restaurants, Inc. (NYSE: DRI) in 2014. Smith famously criticized how the firm's Olive Garden restaurants cooked their pasta and eventually went on to replace Darden's entire board and CEO. What made the takeover even more impressive was the fact that Starboard owned less than 10 percent of the company at the time.
Jeffrey Ubben and ValueAct Capital have been behind some impressive turn-arounds on Wall Street, as the fund typically works with companies that appear undervalued.
Unlike many of his peers, Ubben isn't feared among CEOs; ValueAct usually works cordially with the companies it is targeting.
In 2011, ValueAct acquired a 5 percent stake in Adobe Systems Incorporated (NASDAQ: ADBE) and was later granted a seat on the company's board. Ubben and his firm pushed the software provider to offer its products online with a monthly fee, something that has been praised by investors. ValueAct also gained a seat on Microsoft Corporation (NASDAQ: MSFT)'s board in 2013 after accumulating a large stake in the company.
Ralph Whitworth is the great mind behind Relational Investors, a firm that has been responsible for several high profile breakups and sales.
In November 2010, Whitworth earned a seat on ITT Corp (NYSE: ITT)'s board, which he later used to push the company to split into three different businesses.
The firm was also behind B/E Aerospace Inc (NASDAQ: BEAV)'s decision to split in 2014 and Illinois Tool Works Inc. (NYSE: ITW)'s decision to completely overhaul the company's organization in 2012, which eventually boosted margins and added immense value to shareholders.
While investor activism has been predominantly American, Swedish-born Christer Gardell has been working to shake things up across the pond.
Gardell's firm Cevian Capital has made a name for itself in Europe as one of the most aggressive drivers of corporate change. The firm has been pushing M&A deals at big name firms in Europe like chemical and industrial supplier ALENT PLC (OTC: ALNXY) (OTC: ALNXF) and ceramics and metals processor VESUVIUS PLC ORD (OTC: CKSNF).
Unlike the media-hyped battles that take place in the States, Gardell says investor activism in Europe is a bit more subdued. Cevian works hard to be constructive and work together with management, rather than forcing change with hostile tactics. He told Fortune that he believes investor activism is just as prevalent in Europe as it is in the States, but that it has a different definition.
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