The question is currently being asked if companies have to listen to every activist, no matter how small the stake?
We’ve talked regularly in past posts about the demands of activists and their role in various corporate settings. The WSJ is currently running an article to point out that activists have been taking smaller stakes in companies recently but still expect to be able to rabble rouse and get the results they want. It’s certainly true that Carl Ichan, Dan Loeb’s Third Point and Nelson Peltz’s Trian Fund Management have all managed to move on huge corporate targets in recent years, with a relatively small share purchase, and hold a limited amount of sway in having them accept their point of view. The latest such activity, of course, is one that we’ve discussed: Paul Singer’s Elliott Management with a 3.2 billion investment in AT&T’s $280 billion market capitalization. In this move, Singer and his company plan to dislodge AT&T management from their specified corporate path and to convince them to unwind some of the current CEO’s landmark initiatives. Since 2013, there have been some 200 “campaigns” of this sort by activists – and in earlier years the activists have taken out “decent-sized stakes” in order to gain the control that they need – typically, that was a 6% stake, on average, but sometimes as high as an 8% stake (ref WSJ). In the case of the largest corporations, that size stake is challenging and sometimes impossible to acquire. Thus, the switch to a 1% stake for Microsoft, Apple and General Electric by ValueAct, Ichan and Peltz, respectively. Since that time, similar stakes have been taken in Proctor & Gamble by Trian, and Nestle, by Third Point. It’s hard to say what the goal with the activists actually is, because rarely are they able to move things in the direction they indicate that they want. Their investments have typically done well, because the target companies did well. But their stated intent of making grand changes have done far less well. One could say that they have just taken it upon themselves to be the corporate watchdogs and keep the boards accountable – but I find that idea suspect, as there doesn’t appear to be a generous amount of altruism in their actions. One could also speculate that, because they speak loudly and gain a lot of attention, then perhaps that’s actually the game plan – it attracts investors to their firms. Whatever the reason for their actions might actually be, I’d say that we can just be thankful that they succeed with very limited success in their stated intent.