Has Activism Waned?

High impact activism campaigns declined in 2017, according to a recent webcast by law firm Morgan Lewis, down to 298, the lowest level since 2013.  There were 80 proxy fights in 2017, down from a high of 133 in 2009.

Even considering these statistics, activism remains a key component of the investment community’s goal of improving shareholder value at the companies they own. A few of the reasons cited on the webcast for ongoing activist pursuits are regulators’ lack of enthusiasm to “stem the tide of shareholder activism,” substantial inflows of capital to activists, an “M&A environment that encourages activists to push companies into play,” and increased willingness by companies and their boards to engage with activists.

Targets generally have several things in common. Has your stock performed poorly?  Do you have excess cash on your balance sheet?  Has total shareholder return lagged your peers?  If so, activists might have their sights set on you.  Are your corporate governance practices lacking?  Is your CEO a woman?  According to Harvard Business Review, activists are more likely to target female CEOs (but that’s a subject for a completely different blog post).

Once a target is identified, how do activists carry out their missions? Morgan Lewis provides a playbook that includes accumulating shares in the target company, engaging with the company, applying pressure, and finally, seeking influence and control.

There are several ways companies can track activist activity to lessen the surprise if an advance is made. Increased trading volume, meeting requests from activists at investor conferences, market rumors, and SEC filings (although this list is nowhere near exhaustive), can all signify a coming fight.

More importantly, there are several ways companies can help prevent an activist attack. Conduct a vulnerability assessment, which should include looking closely at recent and historical performance (both financial and operational), understanding your current shareholder base, and reviewing board composition and bylaws, among others.  You can also consider adopting a shareholder rights plan to discourage hostile takeovers, review the company’s plans for enhancing shareholder value, and be active in the investment community rather than going underground (again, this list is far from exhaustive).  Perhaps take the advice of Canadian Lawyer and “think like an activist.”  It may be cliché, but the best defense often is a good offense.

– Laurie Berman, lberman@pondel.com