Home Money Activist investors storm British plc: They do not always produce good results, but they can be a healthy catalyst for change, says RUTH SUNDERLAND

Activist investors storm British plc: They do not always produce good results, but they can be a healthy catalyst for change, says RUTH SUNDERLAND

0 comment
'Activist' investor: billionaire Nelson Peltz
  • Britain is the biggest target in Europe
  • Boards need to think about what they can do to make their company less vulnerable
  • The best defense is to run a good ship



<!– <!–




'Activist' investor: billionaire Nelson Peltz

‘Activist’ investor: billionaire Nelson Peltz

Nelson Peltz, the 81-year-old billionaire whose battle with Disney will come to a head this week, is one of a now-aging breed of Wall Street agitators who first rose to prominence in the 1980s.

So-called “activist” investors like Peltz and his octogenarian fellow Octogenarian Carl Icahn – one of the inspirations for Gordon Gekko in the 1987 film Wall Street – buy shares in companies and then force the bosses to make changes. They don’t like being portrayed as predators or asset strippers.

Peltz describes himself as a “constructivist” who works with management, which could make Disney boss Bob Iger’s eyes roll. Carl Icahn claims he is in his ninth decade on a mission to right “the glaring injustices” committed by corporate America. This included taking a small activist stake in McDonald’s to improve the treatment of pregnant sows.

His reinvention as an advocate against animal cruelty may be surprising, but his campaign failed anyway. After years of being largely an American phenomenon, activism is starting to take off elsewhere.

Britain is the biggest target in Europe. Activists have turned to the FTSE 100 boards of Glencore – where an Australian hedge fund is pushing to move its listing to Sydney – for gambling group Entain.

Peltz has worked his way onto the board of Unilever.

Elliott Investment, led by another experienced US financier, Paul Singer, is challenging bosses for change at Scottish Mortgage Trust. In a report earlier this year, management consultants Alvarez & Marsal (A&M) identified 146 companies in Europe at risk from activists over the next 18 months.

By far the largest number of these, 54, were in Britain, twice as many as in Germany, next on the risk list.

A&M predicts this will increase over the next eighteen months, partly because consumer and energy companies are well represented in the UK stock market. She believes that these sectors look juicy to the activists.

UK company valuations, as measured by price-earnings ratios, are 17 percent below the European average, offering an opportunity to buy at an attractive price.

It will come as no surprise that incumbent managers resent these corporate hecklers, whose arrival at the gate is a none-too-subtle critique of their own performance.

Peltz and co are portrayed as selfish agents provocateurs. The unease is compounded by the fact that they can do their bit without owning any meaningful property.

They often use derivatives or borrow shares from investors who should know better, instead of building a real stake.

Does activism work? Sometimes.

The changes they demand are usually intended to break up a company, return money to shareholders, close a deal, or otherwise distribute capital.

This can give complacent boards a boost or accelerate changes that were already planned. But the long-term results are unclear.

Goldman Sachs found last year in a study of more than 2,100 activist campaigns since 2006 that shares in target companies initially performed better. However, this usually became negative after six months.

The conclusion is that activists do not always achieve good results, but they can be a healthy catalyst for change. As they scour the market for their next prey, boards should consider what they can do to make their businesses less vulnerable.

As Aviva CEO Amanda Blanc might testify after expelling an activist, the best defense is to steer a good ship.

You may also like