After a dormant phase since 2008, shareholder activist investors are back on the scene. These activist investors specialise in using their rights as share owners to put pressure on boards to change strategy to improve shareholder returns.
The Financial Times front page recently led with the headline “Rebel investor takes F&C chair.” After an epic battle with management, Sherborne, an activist investor, supported by major institutional shareholders including Aviva, succeeded in removing the chairman of F&C, a well-known listed fund manager at an EGM. The activist’s founder Edward Bramson is taking over as chairman in spite of not presenting an alternative plan for the future of F&C. Nonetheless, F&C’s share price has increased dramatically since Sherborne’s investment became public knowledge.
A fascinating example of the favoured weapon of the activist investor’s trade, the letter to the board, is one penned by Elliot Associates, the $17bn hedge fund, calling for resignations from the board of the chief executive and chairman of Actelion, the Swiss biotechnology company over the board’s poor strategic direction and corporate governance.
Meanwhile, Rob Hain, ex Invesco UK chief executive and Governance for Owners, launched new activist funds this week.
What is also interesting about shareholder activism in its 2011 form is that institutional investors, who traditionally preferred to work behind the scenes to resolve situations with boards, are now prepared to be more vocal and public in their call for change whereas shareholder activists, that historically fought their battles with boards in public and in the press have taken a quieter, low profile approach.
A good illustration of the former is Legal & General, Aviva (again) and other institutional shareholders who successfully ousted David Montgomery, chief executive of Mecom plc. He destroyed over £750m worth of value during his reign at a company that, on his arrival, had a market cap of £1bn. 0n the day of his resignation, the share increased by 29%.
Investors can add value through activism, be they full-time activists or institutional investors using their share ownership rights. The environment for activists is promising with the forecasted rise in mergers and acquisitions enabling activists to exit their investments and also with many large corporates now sitting on record levels of cash, these companies have become targets for activists calling for a return of this to shareholders.
With many people’s pension funds invested in large institutional pension funds, which are in turn investors in shareholder activist funds, the return(s) of shareholder activism will be for the good of everyone.