Activist investors mount record number of attacks against companies

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Companies faced a record number of attacks from activist investors in 2023 as disgruntled shareholders sought to oust directors or force the sales of businesses whose share prices had languished. 

There were 252 new campaigns globally, according to a report by investment bank Lazard, a 7 per cent increase on the previous year. Few companies were safe from scrutiny, with a broad range of activists targeting blue-chip businesses such as Walt Disney, Salesforce and Starbucks.  

Europe and Asia Pacific saw record levels of activity, with the UK and Japan leading the pack. There were 69 campaigns launched in Europe, most of which had demands related to mergers and acquisitions, and 44 new campaigns in Asia Pacific where local hedge funds were the most active participants. 

“Activism today has a very regional dynamic,” said Rich Thomas, a managing director in Lazard’s capital markets advisory group. “Global campaigns are at an all-time high because [Asia Pacific] and Europe have had a breakout year.”

Activists typically buy stakes in companies and lobby for changes they believe will help increase the share price. In its earlier years investors attacked businesses and their leadership in public letters but advisers said much of the negotiating between activists and targets now took place behind closed doors. 

However, a number of high-profile battles have spilled into the public forum, adding to pressure on executive teams dealing with slowing economic growth and higher interest rates. 

Trian Partners last year said it would seek two board seats at Disney, setting the stage for one of the most contentious proxy fights in years and pitting its co-founder Nelson Peltz against returning chief executive Bob Iger. 

Carl Icahn, whose own public investment company was attacked by activist short seller Hindenburg Research, waged an aggressive campaign against Illumina over its acquisition of cancer test developer Grail. In December the gene sequencing company said it would divest from Grail.  

While activism has historically been dominated by hedge funds such as Elliott Management and Third Point, the strategy is increasingly being deployed by other types of shareholders. More than 40 per cent of activists launching campaigns last year did so for the first time, according to Lazard, as the list of discontented investors with whom companies must deal broadens. 

Thomas said Europe in particular had seen a significant uptick in the number of first time activists, after many previously held back during the cost of living crisis and rising energy prices.

“The barriers have come down and frustrated shareholders are now launching more campaigns,” he said. “We’re seeing this landscape of activists diversify and broaden.”

Starbucks is facing a challenge from a coalition of labour unions called the Strategic Organizing Center, which has launched a proxy contest to replace three of the company’s directors with its own nominees over “severe human capital mismanagement”.

The proxy fight, if it goes ahead, is expected to be a test case for whether a larger shareholder can be won over by single-issue battles, and shows the threat companies face even from shareholders who hold minor stakes.

Universal proxy rules introduced in 2022, which guarantee that all board nominees will appear on the company’s ballot, have had little effect on the number of board seats won by activists, according to Lazard.

However, companies are now quicker to call a ceasefire with activist investors to avoid proxy contests. Just 37 per cent of campaigns that ended with winning a board seat lasted more than 90 days last year, down from 44 per cent, and 34 per cent settled within one week, according to Lazard. 

Over the past year there has also been a resurgence in multiple hedge funds swarming around the same target. At one point Salesforce had seven activists on its shareholder register, according to people familiar with the company, including ValueAct, Elliott and Third Point. 

“There had been this discussion of the wolf packs that would attack small companies but rarely would you see those campaigns at a large cap company because it was hard to get a hold of enough shares and manage the process,” said Bruce Goldfarb, founder of proxy solicitation firm Okapi Partners.

“Now there are a number of activist hedge funds who have to take larger positions to be impactful for their investors so they end up at the same targets, often without any collective action.”