Activist investors launch record number of attacks against companies

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Companies faced a record number of attacks from activist investors in 2023 as disgruntled shareholders sought to oust directors or force the sale of businesses whose share prices had been depressed.

According to a report from investment bank Lazard, 252 new campaigns were launched globally, an increase of 7 percent from the previous year. With a wide range of activists targeting blue-chip businesses such as Walt Disney, Salesforce, and Starbucks, few companies were safe from scrutiny.

Europe and Asia Pacific saw record levels of activity, with the UK and Japan leading the way. 69 campaigns were launched in Europe, the majority of which had demands related to mergers and acquisitions, and 44 new campaigns in Asia Pacific where local hedge funds were the most active participants.

“The dynamics of activism today are very regional,” said Rich Thomas, managing director of Lazard’s capital markets advisory group. “Global campaigns are at an all-time high because [Asia Pacific] And Europe has had a breakout year.

Activists typically buy stakes in companies and lobby for changes they believe will help increase the share price. In its early years investors attacked the businesses and their leadership in public letters, but consultants said most conversations between activists and targets now happen behind closed doors.

However, several high-profile battles have spilled onto the public stage, increasing pressure on executive teams dealing with slow economic growth and high interest rates.

Trian Partners said last year it would seek two board seats at Disney, setting the stage for one of the most controversial proxy fights in years and pitting its co-founder Nelson Peltz against Chief Executive Officer Bob Iger .

Carl Icahn, whose own public investment firm was attacked by activist short seller Hindenburg Research, led an aggressive campaign against Illumina over its acquisition of cancer testing developer Grail. In December the gene sequencing company said it would divest from Grail.

While activism has historically been dominated by hedge funds like Elliott Management and Third Point, the strategy is increasingly being deployed by other types of shareholders. According to Lazard, more than 40 percent of the activists who started campaigns last year did so for the first time, as the list of disgruntled investors with whom companies must deal expanded.

Thomas said Europe in particular has seen a significant increase in the number of first-time workers, with many previously left behind during the cost-of-living crisis and rising energy prices.

“The barriers have come down and frustrated shareholders are now launching more campaigns,” he said. “We are seeing this landscape of activists becoming more diverse and broader.”

Starbucks faces a challenge from a coalition of labor unions called the Strategic Organizing Center, which has launched a proxy contest to replace three of the company’s directors with its own nominees over “serious human capital mismanagement.”

The proxy fight, if it goes ahead, is expected to be a test case of whether a large shareholder can be won over by a single-issue fight, and shows that companies face threats from those shareholders as well. Who hold minority stake.

Universal proxy rules introduced in 2022, which guarantee that all board nominees will appear on the company ballot, have had little impact on the number of board seats won by activists, according to Lazard.

However, companies are now quick to call a ceasefire with activist investors to avoid proxy contests. According to Lazard, only 37 percent of campaigns that ended with winning a board seat lasted more than 90 days last year, down from 44 percent, and 34 percent settled within a week.

There has also been a resurgence in the past year among many hedge funds coalescing around a single goal. At one time, there were seven activists on Salesforce’s shareholder register, including ValueAct, Elliott and Third Point, according to people familiar with the company.

Founder Bruce Goldfarb said, “There was discussion about wolf groups that would attack smaller companies, but rarely would you have seen those campaigns in a large cap company because it was harder to get a hold of enough shares and manage the process. ” Proxy solicitation firm Okapi Partners.

“There are now a number of activist hedge funds that have to take large positions to be influential to their investors so that they end up on the same target, often without any collective action.”

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