An activist shareholder is a shareholder that uses an equity stake in a corporation to put pressure on its management.The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.). According to research firm Activist Insight, a total of 922 listed companies globally were publicly subjected to activist demands in 2018, up from 856 in 2017.
A shareholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation‘s register of shareholders or members.
In accounting, equity is the difference between the value of the assets and the value of the liabilities of something owned. It is governed by the following equation:
A corporation is an organization, usually a group of people or a company, authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration.
A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking.
The financial form of shareholder activism has gained popularity as management compensation at publicly traded companies and cash balances on corporate balance sheets have risen. Not only are the aggregate dollars invested in the activist asset class continuing to grow, but activists are also generating significant positive attention from mainstream media by taking more sophisticated approaches to identifying their platforms and running their campaigns.Once derided as corporate raiders, shareholder activists are now the recipients of admiration for sparking change in corporate boardrooms, leading to corporate boards developing best practices for responding to shareholder activism. Activists increasingly are transitioning from outside agitators to influential insiders. In fact, some well-established activists were able to secure board seats without running a proxy contest in 2015.
In financial accounting, a balance sheet or statement of financial position or statement of financial condition is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as Government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
Shareholder activists are making their mark on M&A activity as well – a 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry.Increasingly, however, the non-financial form of shareholder activism is affecting companies in a range of sectors. Shareholders, often with a comparatively small stake in a company, are seeking to influence the company's environmental and social performance.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.
A proxy fight, proxy contest or proxy battle, sometimes also called a proxy war, is an unfriendly contest for the control over an organization. The event usually occurs when corporation's stockholders develop opposition to some aspect of the corporate governance, often focusing on directorial and management positions. Corporate activists may attempt to persuade shareholders to use their proxy votes to install new management for any of a variety of reasons. Shareholders of a public corporation may appoint an agent to attend shareholder meetings and vote on their behalf. That agent is the shareholder's proxy.
Third Point Management is a New York–based hedge fund founded by Daniel S. Loeb in 1995. The firm operates as an employee-owned and SEC-registered investment advisor with approximately $17 billion in assets under management. As of December 2016, it has returned an average of 15.7% a year since inception.
Some of the recent activist investment funds include: California Public Employees' Retirement System (CalPERS),Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida (SBA), and Relational Investors, LLC.
Icahn Enterprises L.P. is an American conglomerate headquartered at the General Motors Building in New York City. The company has investments in various industries including auto parts, energy, metals, rail cars, casinos, food packaging, real estate, and home fashion. The company is controlled by Carl Icahn, who owns 95% of it.
The statutory and fiduciary mandate of the State Board of Administration of Florida (SBA) is to invest, manage and safeguard assets of the Florida Retirement System (FRS) Trust Fund as well as the assets of a variety of other funds. The SBA manages 25 different investment funds and trust clients.
Relational Investors is an activist investment fund based in San Diego, California. Founded in 1996 by Ralph V. Whitworth, the fund has $6 Billion in assets under management. The firm primarily invests in value stocks of companies with market capitalization of over $5 billion while charging a 1% management fee and a 20% incentive fee on returns above the S&P 500.
Due to the Internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc. shareholders created an online petition to protest the MCI/Verizon merger.
MCI, Inc. was an American telecommunication corporation, currently a subsidiary of Verizon Communications, with its main office in Ashburn, Virginia. The corporation was formed originally as a result of the merger of WorldCom and MCI Communications corporations, and used the name MCI WorldCom, succeeded by WorldCom, before changing its name to the present version on April 12, 2003, as part of the corporation's ending of its bankruptcy status. The company traded on NASDAQ as WCOM (pre-bankruptcy) and MCIP (post-bankruptcy). The corporation was purchased by Verizon Communications with the deal finalizing on January 6, 2006, and is now identified as that company's Verizon Enterprise Solutions division with the local residential divisions being integrated slowly into local Verizon subsidiaries.
The practice of shareholder activism has its roots in the 17th-century Dutch Republic, with pioneering activist shareholders like Isaac Le Maire, a sizeable shareholder of the Dutch East India Company (VOC).
During the 1980s, notable activist investors such as Carl Icahn and T. Boone Pickens gained international notoriety and were often perceived as "corporate raiders" for acquiring an equity stake in publicly owned companies, like Icahn's investment in B.F. Goodrich, and then forcing companies to take action to improve value or rid themselves of rebel intruders like Icahn by buying back the raider's investment at a fat premium, often at the expense of the other shareholders.
In an Opalesque TV interview with notable activist investor Phillip Goldstein of Bulldog Investors, Goldstein describes the role of an activist investor as that of a catalyst unlocking value in an underlying security. He goes on to say that the public perception of activist investors has changed, and this image of "corporate raiders" has dissipated.
Notable activist investors: [ not in citation given ]
A list of institutional activist investors in the United States that filed appropriate disclosure forms with the SEC within the most recent 12 months, can be found on Fintel.
New research published at The University of Oxford revisits the assumption that all shareholder activism is the same, characterizing Bill Ackman's activities with Canadian Pacific Railway as paradigmatic of "engaged activism" – which is longer term in nature with correlated benefits to the real economy, as distinct from shorter term "financial activism".
Taking an activist approach to public investing may produce returns in excess of those likely to be achieved passively. A 2012 study by Activist Insight showed that the mean annual net return of over 40 activist-focused hedge funds had consistently outperformed the MSCI world index in the years following the global financial crisis in 2008.Activist investing was the top-performing strategy among hedge funds in 2013, with such firms returning, on average, 16.6% while other hedge funds returned 9.5%.
Organizations such as the Interfaith Center on Corporate Responsibility (ICCR), As You Sow and Ceres use shareholder resolutions, and other means of pressure, to address issues such as sustainability and human rights.
Shareholder activism directed at both European and American companies has been surging. [ which? ] studies try to examine firm characteristics that lead to shareholder activism.[ citation needed ] A seminal[ dubious ][ citation needed ] work in the field was brought forward by Michael Smith in 1996 in an article published in the Journal of Finance. Researchers also try to understand what makes company a desirable target for an activist investor. Lately,[ when? ] both scholars and practitioners started using machine learning methodologies to predict both targets and activists.Numerous
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.
In business, a corporate raid is the process of buying a large stake in a corporation and then using shareholder voting rights to require the company to undertake novel measures designed to increase the share value, generally in opposition to the desires and practices of the corporation's current management. The measures might include replacing top executives, downsizing operations, or liquidating the company.
Carl Celian Icahn is an American businessman, investor, and philanthropist. He is the founder and controlling shareholder of Icahn Enterprises, a diversified conglomerate holding company based in New York City, formerly known as American Real Estate Partners. He is also Chairman of Federal-Mogul, an American developer, manufacturer and supplier of powertrain components and vehicle safety products.
Corporate governance is the collection of mechanisms, processes and relations by which corporations are controlled and operated. Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation and include the rules and procedures for making decisions in corporate affairs. Corporate governance is necessary because of the possibility of conflicts of interests between stakeholders, primarily between shareholders and upper management or among shareholders.
Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party, or an act with a certain standard of care.
Greenmail or greenmailing is the action of purchasing enough shares in a firm to challenge a firm's leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium in order to prevent the potential takeover. The greenmail strategy has evolved since its first practices with ways to counter greenmail, other variations of greenmail, as well as ways to reinforce a greenmail tactic. In the area of mergers and acquisitions, the greenmail payment is made in an attempt to stop the hostile takeover.
In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment.
Socially responsible investing (SRI), or social investment, also known as sustainable, socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change.
With respect to public companies in the United States, a shareholder resolution is a proposal submitted by shareholders for a vote at the company's annual meeting. Typically, resolutions are opposed by the corporation's management, hence the insistence for a vote. For publicly held corporations in the United States, the submission and handling of resolutions is regulated by the Securities and Exchange Commission (SEC).
Post-merger integration or PMI is a complex process of combining and rearranging businesses to materialize potential efficiencies and synergies that usually motivate mergers and acquisitions. The PMI is a critical aspect of mergers; it involves combining the original socio-technical systems of the merging organizations into one newly combined system.
A proxy firm provides services to shareholders to vote their shares at shareholder meetings of, usually, quoted companies.
Equity carve-out (ECO), also known as a split-off IPO or a partial spin-off, is a type of corporate reorganization, in which a company creates a new subsidiary and subsequently IPOs it, while retaining management control. Only part of the shares are offered to the public, so the parent company retains an equity stake in the subsidiary. Typically, up to 20% of subsidiary shares is offered to the public.
Shareholder rebellion occurs when the owners of a corporation work to throw out management or oppose their decisions. Shareholder rebellion may occur at a annual general meeting or through a proxy battle. Shareholders may also threaten to collapse a firm's stock price through concentrated selling. In 1998, the Rockefeller family led a shareholder revolt against Exxon over its climate change policy. In 2005, Michael Eisner retired after Walt Disney's nephew, Roy Disney, led a shareholder revolt, claiming Eisner was a micromanager who had caused a creative brain drain. In 2010, British Petroleum and Shell faced a shareholder revolt over their Canadian tar sands policy.
The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders, by Wall Street Journal writer Connie Bruck, largely recounts the rise of Michael Milken, his firm Drexel Burnham Lambert, and the leveraged buyout boom they helped to fuel in the 1980s.
Institutional Shareholder Services, Inc. (ISS) is a proxy advisory firm. Hedge funds, mutual funds and similar organizations that own shares of multiple companies pay ISS to advise regarding share holder votes. It is the largest such firm, with over 61 percent of the business. It was owned by MSCI until April 30, 2014 when it was purchased by Vestar Capital Partners. In 2017, ownership of ISS switched to Genstar Capital.
Transaction Advisors is a technical journal that was founded in Chicago. It is designed for senior corporate executives at public companies, board members, and private equity investors.
Established in September 2005, the Institute for Governance of Private and Public Organizations (IGOPP) is a Canadian think tank and joint initiative of HEC Montréal and Concordia University and the Jarislowsky Foundation. The Institute is committed to promoting strong corporate governance practices among organizations in Quebec and the rest of Canada.
Minority discount is an economic concept reflecting the notion that a partial ownership interest may be worth less than its proportional share of the total business. The concept applies to equities with voting power because the size of voting position provides additional benefits or drawbacks. For example, ownership of a 51% share in the business is usually worth more than 51% of its equity value—this phenomenon is called the premium for control. Conversely, ownership of a 30% share in the business may be worth less than 30% of its equity value. This is so because this minority ownership limits the scope of control over critical aspects of the business. Share prices of public companies usually reflect the minority discount. This is why take-private transactions involve a substantial premium over recently quoted prices.
Cevian Capital is a Swedish investment firm founded in 1996 by Christer Gardell and Lars Förberg, both of whom serve as managing partners. Backed by Carl Icahn, it is the largest activist investment firm in Europe. It has offices in Stockholm, Zurich, and London.