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Activist shareholders campaigns have increased, and many are gaining the support of other shareholders and institutional investors. At The Deal's M&A Outlook 2009 conference Tuesday, panelists discussed how and why activist shareholders are gaining support.
Several panelists agreed that activist investors were gaining support
because many companies do not communicate their strategies to
shareholders. "It's natural that the owners should speak with the CEO.
I think it's very healthy for the CEO to talk to shareholders to find
out what they think the company should be doing," said Timothy Brog, a
portfolio manager of Locksmith Value Opportunity Fund.
Joele Frank, Wilkenson Brimmer Katcher partner Matthew Sherman said that companies have to be trained to constantly review their overall strategy and capitalization programs, and often that can be done through public relations. "It's necessary, and it's basic IR. A lot of companies don't do it, but they don't want to be vulnerable in these types of situations," he said. "At the same time, activist shareholders are evolving and getting smarter at the game. You see activist like Carl Icahn negotiating buyout deals. They are using their influence to control situations of companies." Rachel Posner, senior managing director and general counsel for Georgeson Inc., said there are more and more companies taking a more proactive approach to shareholder activism because activists are getting aggressive and creative. For example, activists like Bill Ackman, who gave a presentation last week on how Target Corp. should change, are taking their ideas public and are willing to speak with other investors publicly. "He took a high road approach," she said. "You never want to be in a situation where you have one board member who speaks differently then the rest of the board. So companies have to hold periodic fire drills to discuss strategy, and everyone should be on the same page strategy-wise," she said. Jared Landaw, managing director and general counsel of Barington Capital Group LP, stated that he believes companies are more open now to communicating with shareholders. "We are investing in companies we believe are undervalued by the marketplace and could appreciate significantly as a result of financial or operational improvements or a change in corporate strategy, We then reach out to these companies and seek to work with them constructively to help improve the bottom line results. As part-owners of the company, we believe we have a right to ask, 'Why have you been underperforming the market and your peers? And offer suggestions on how they can improve," he explained. Timothy Brog, a portfolio manager of Locksmith Value Opportunity Fund, said Ackman's presentation was a good and unique idea. By going public, he made the presentation to management and got to discuss his ideas with other shareholders, which he otherwise would have had to do through forms. He said that because many small hedge funds don't have advisers, but are interested in maximizing returns, institutional investors are teaming up with activists to instigate change. "I have seen them team up with activists to winning proxy campaigns." Damien Park, president and CEO of Hedge Fund Solutions, agreed with Brog: "I have seen activists spoken to by institutional investors who are not activist investors, but they would like to see change, and they want to be educated on activism, and they connect with these activists themselves," he said. Barington's Landaw believes that the stigma of working with activist shareholders has begun to fade and a lot of the top financial institutions are now representing activists. He notes that a "healthy skepticism" has come about in the wake of Enron and WorldCom and there is more of a willingness now to consider the suggestions and concerns of an activist investor. "If a company is underperforming and a shareholder has ideas, then it is worth listening to," he added. - Maria Woehr See all M&A Outlook 2009 posts CategoriesComments Deal Video
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