Activist shareholders have deployed $45 billion in new campaigns year to date, nearly double the amount for all of 2016. That figure highlights several key shareholder activism trends cited in a recent Lazard report.
“In terms of the megatrends we’ve seen for 2017, activism is as strong as it’s ever been” says Jim Rossman, Managing Director, Head of Shareholder Advisory at Lazard. It’s evident by the amount of capital invested as part of campaigns, and the number of businesses sought after by activists.”
Notable activists highlighted in the Lazard report include Elliott Management, Trian Partners and ValueAct Capital. Elliott is a multi-strategy hedge fund that has launched 12 campaigns globally in 2017, largely focusing on event-driven catalysts such as M&A and changes to corporate structure. Trian and ValueAct, by comparison, have geared their campaigns more towards operational improvements and have focused on targets in the U.S., with ValueAct occasionally pursuing UK targets as well.
Elliott’s campaigns launched this year have totaled approximately $10 billion invested, on top of another $7 billion deployed in currently-ongoing campaigns that were launched prior to 2017. Trian, which lost the largest-ever proxy contest at Procter & Gamble earlier this month, invested $3.3 billion in 2017 campaigns with another $5 billion deployed in ongoing campaigns launched prior to 2017. ValueAct deployed $1.4 billion in campaigns this year, on top of another $7.0 billion in active campaigns that began before 2017. The 12 leading activists highlighted in Lazard’s report deployed approximately $30 billion in new campaigns in 2017, in addition to more than $80 billion still at work in ongoing campaign situations launched before this year.
The past few years of heightened campaign activity have also had a notable impact on CEO turnover, according to the report. Lazard indicates that annual CEO turnover at companies targeted by activists has averaged 23% since 2013. For non-targets, the annualized CEO turnover rate has been only 12% over the same period.
The report also highlights that 2017 has seen activism go global. Says Rossman, “allocation of activist capital to global companies is a major takeaway. For a few years, the focus was on smaller companies and was done regionally. What I see now is shareholder activists, throughout the world, viewing ‘national champions’ and large companies as compelling targets.
“20% of the activist capital has targeted global companies in places like France, Switzerland and others. Activists know it’s a good time to attack global companies. Their desire is to enhance returns, regardless of where the company is located.”
With activists increasingly pursuing larger and better-resourced targets, companies have also been fighting back, according to the report, which cites Akzo Nobel’s litigation with Elliott, Deckers Outdoors’ refusal to entertain sale demands from Marcato Capital and Red Mountain Capital, and Acorda’s adoption of a poison pill in response to Scopia Capital as prime examples of the increasingly resistant environment facing activists.
The third major take away from the report is the expanding influence of passive investors, who are increasingly voicing their priorities for corporate governance.
“There’s been an investment by the big three funds – Vanguard, State Street and BlackRock – in taking interest in stewardship of the assets they manage,” continues Rossman. “They’re focused on who sits on the board and the long-term strategy that the activists are looking to change. The index funds are investing in their teams. This will change the way boards, shareholders and management engage.”
Looking ahead, the strategy from the ‘big three’ indicates that they are concerned with the environmental, social and governance (ESG) practices of their portfolio companies.
“ESG has become a meaningful part of the investment process for major institutions”, says Rossman. “ESG today means ‘what risks exist within your company?’ ‘E’ means adequately disclosing that you have a plant on a coast threatened by hurricanes. ‘S’ means you’re targeting 30, 40 or 50% diversity, especially with respect to gender diversity, on the board. ‘G’ means you’re putting people on the board and management team with vast relevant experience.”
On all fronts, shareholder activism is growing. “No longer is any sector or region safe from the activist campaign,” says Rossman.