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Profit from activists: Mischievous investors at Disney and Scottish Mortgage can give shares a boost

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Agitating for change: Nelson Peltz (left) and Paul Singer



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Activist investors are aggressively campaigning for change at major British and American companies. You can think of these larger-than-life personalities as “bullying billionaires.” But you also have to wonder if they are not only making mischief, but also making money for other investors.

The key players in the game are American hedge fund managers. The most famous among them is Nelson Peltz, boss of the Trian fund, enemy of “woke” and father-in-law of David Beckham’s son, Brooklyn. Peltz recently admitted that he may be a bully billionaire, but sees himself as a “constructivist” and not an activist. He is currently making his presence known at Unilever, the Dove soap and Marmite group.

He is also seeking board representation at the Walt Disney empire. This bitter campaign reaches a showdown on April 3.

The equally combative Paul Singer, boss of Elliott Investment Management, has taken a 5% stake in Scottish Mortgage, the FTSE 100 tech trust where private, unlisted companies make up 30% of the portfolio.

Singer’s other investments include the Waterstones bookstore. He also owned the AC Milan football team. His bid for electronics chain Currys has just been rejected. Drug company GSK and the Alliance Trust are among his previous British targets.

Agitating for change: Nelson Peltz (left) and Paul Singer

Agitating for change: Nelson Peltz (left) and Paul Singer

Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund, argues that activists can be a force for good.

But a study by asset manager Lazard of traditional US activist campaigns, which examined the years from 2018 to mid-2023, found that they generated short-term outperformance of 2 percent in the first week after the campaign was announced. But long-term outperformance has been elusive, with the average share price down 8.6 percent over the subsequent twelve months.”

Against the backdrop of this skepticism, Peltz appears to be gaining respect. Unilever’s share price is up 4 percent this year, indicating confidence in a Peltz-like revival for the company.

As part of Unilever’s overhaul, Magnum and Ben & Jerry’s £15 billion ice cream division will be launched in Amsterdam. Peltz, 81, should be pleased. Some claim that his dislike of Ben & Jerry’s progressive activism was the reason he took a 1.4 percent stake in Unilever.

Peltz takes issue with the cost and woke tone of recent Marvel films at Disney. He faces opposition from film director George Lucas and other Hollywood heavyweights who support Disney CEO Bob Iger.

Peltz turned his attention to Disney in early 2023, acquiring shares for around $92. The price now stands at $118, after unveiling a $5.5 billion restructuring program. Analysts at Barclays have set a price target of $135.

As a shareholder, I’m not sure if it will be a happily ever after when Peltz joins the board, but I’m going to relax in my chair (maybe with some popcorn) and watch the story unfold.

1711760796 64 Profit from activists Mischievous investors at Disney and Scottish Mortgage

1711760796 64 Profit from activists Mischievous investors at Disney and Scottish Mortgage

Even more uncertainty surrounds the outcome of Singer’s Scottish mortgage excursion. But again, as an investor I’m going to wait and see, hoping that he will make a positive difference – fairly quickly. The Alliance saga lasted seven years. Scottish Mortgage’s share price has recovered to 894p, after peaking at 1515p in October 2021. Singer claims that buying back the trust shares would give the shares a boost – and narrow the discount between the price and the net asset value. But critics fear this would be financed by selling listed companies, increasing the size of the unlisted portion.

FundCalibre’s Darius McDermott also questions Elliott’s distaste for these holdings. “Private companies are inherently less transparent than publicly traded companies,” he says. ‘But some of Scottish Mortgage’s properties are established companies such as ByteDance, owner of Tik Tok, or Elon Musk’s Space X.’

Some may be tempted to bet on Disney, Scottish Mortgage or Unilever. But those who bought BT or Vodafone when French activists arrived on the scene are disappointed

Patrick Drahi owns a 24.5 percent stake in BT. Xavier Niel has 2.5 percent at Vodafone. BT’s share price is 109.65p, below its level in June 2021 when Drahi started buying. Vodafone’s price is also reversed.

I’d suggest a different strategy: sit back and enjoy the fun of having cash in UK stocks.

The arrival of Peltz and Singer suggests that British markets are undervalued and that these activists could spur even more action.

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Scottish Mortgage’s solid-sounding name belies the feisty nature of this FTSE100 member investment trust

The solid-sounding name Scottish Mortgage belies the feisty nature of this FTSE100 member investment trust.

The portfolio does not consist of loans to Scottish homeowners. Rather, it is a bet on innovation in AI (artificial intelligence) and other areas in the US, Europe and China.

Scottish Mortgage’s largest listed companies include tech giant Nvidia, maker of AI microchips, and ASML, the Dutch group, the number one in the production of machines that make microchips.

More controversial is the unlisted ‘private equity’ element of the trust, which makes up around 27% of the portfolio. Some investments are unclear. Others are world famous such as ByteDance, the Chinese owner of TikTok and Elon Musk’s SpaceX.

These companies excite many investors. But they do not impress the holder of 5% of the trust’s shares: American activist investor Paul Singer, boss of the hedge fund Elliott Investment Management and veteran of the fight against the boards of drug group GSK and others.

Singer may own the Waterstones bookstore and was the owner of the AC Milan football club until 2022. But the 79-year-old doesn’t seem to want to spend his time on such pursuits, as he is more interested in forcing change at the companies he invests in.

Scottish Mortgage’s other investors should now be asking themselves whether they like the strategy Singer wants to pursue through the trust. – because he can succeed.

Baillie Gifford, the manager of Scottish Mortgage, is known for having the courage to stand out for his beliefs. Some call the attitude ‘arrogant’ and even ‘cult-like’. But Singer can be very convincing. This is the man who seized an Argentinian ship to force the country to pay off maturing bond debt.

Singer argues that Scottish Mortgage should buy back its own shares, a mechanism that aims to increase the share price and reduce the discount between the price and the trust’s NAV, its net asset value.

A reduction in the discount would be welcome. But to achieve this it may be necessary to sell some of the listed shares, increasing the stake in the more illiquid unlisted companies.

Downsizing these privately held companies would be a challenge. Normally, some would proceed with an IPO and become publicly traded companies. But currently there is less activity in this part of the market.

To dispose of these interests in any other way risks robbing the trust of some of technology’s future stars.

This opportunity to be a small venture capitalist by backing such companies is one of the reasons why I have been putting a small amount into Scottish Mortgage every month for over a decade.

But this is an adventurous choice, suitable for people who like to have a long-term vision.

The trust’s shares have nearly halved since their peak in the fall of 2021, and there’s no guarantee Singer’s intervention can reverse this trend anytime soon.

If you prefer something with a lower risk profile, there are many other global trusts, such as F&C, that also offer some exposure to the AI ​​industrial revolution.

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