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Activist Funds are Beating Companies with Graphic Design

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Activist shareholder hedge funds have become popular. Activist investors and managers like Corvex’s Keith Meister and Carl Icahn are consistently beating the street by targeting underperforming companies, and politely painting management as a bunch of greedy drooling idiots unfit to manage a troop of girl scouts, let alone a public company, and instilling themselves and their detailed go-forward strategy as the new law. Activist campaigns are called “campaigns” because they rely on a successful creation of momentum amongst the shareholder base. The funds employ talented business analysts, managers and former IR firm consultants to basically back-seat-drive a company convincingly enough that the other passengers eventually fold and say, “Yeah. Let him drive, he seems to know what he’s doing!”

The Edge Activist Funds Have

Activist funds have a distinct advantage over management in a proxy fight, insomuch as it’s hard for a backseat driver to make any mistakes, but easy for him to point out mistakes that the driver has made, through the benefit of hindsight.

In the much publicized multi-front activist fund attack against US restaurant company Darden Brands, Barington Capital Group produced a slide deck [1] detailing a plan to chop the business up into several different restaurant companies plus a REIT. True to form, the deck is an illustrated assault on the board of directors, using charted data as a primary weapon.

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The chart above appears 3 times in the Barington Capital presentation. It supports multiple parts of the story they’ve been trying to craft by highlighting non-GAAP metrics.

Barington and Starboard’s have the advantage of being able to make model-based share price projections of the performance of theoretical businesses that they would create through the chopping and fileting of their target, then drawing a picture for the rest of the investors. It’s a well thought-out and exceedingly well delivered message that resonates with investors and into their social media strategy as well.

The Company Response

You would think it would have been swift and decisive. But it wasn’t. It took Darden almost 10 months to create its response. Existing management can’t exactly forecast a dramatic turnaround in their business (let alone their share price) without the SEC showing up. When they did finally release their presentation [2] designed to ward off the activist attack, Darden was reduced to making wordclouds of feedback from marketing focus groups, hoping perhaps that their optimism would be contagious, and spread to shareholders.

It’s not very convincing and doesn’t hold much water compared to pitch by the online activist investors. Barington arrives on the scene with dozens of charts detailing why Darden is falling behind its peer group and supporting this with a range of data points. Their story is compelling, the narrative is well supported, and the options for shareholders are clear. Darden fails to look credible by focusing too much on customer sentiment and management experience. It’s an under-whelming presentation. If those things mattered as much as Darden thinks they do, then Barington wouldn’t be taking this action in the first place.

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Storytelling with Graphic Design Wins

The Barington Capital & Starboard Value’s pitch ended up being more compelling to investors, who replaced the entire Darden board [3] at a shareholders’ meeting on Oct. 10th.

Despite engaging all of the right people and putting up one hell of a fight, Darden was effectively dead on arrival once the activist sharks caught the taste of blood in the form of a sector lag (also helpfully illustrated in the presentation). From there it was just a matter of coming up with a plan and using graphic design to make it look better (we mean literally look better) than the one management was already executing.

Stay tuned for more about the effectiveness of activist investors online. Future blogs will cover more on Darden Brands having their lunch eaten by activist shareholders, including their uses of illustrative data, social media jujitsu and general sentiment exploitation.

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Tim Howard

Tim is our CEO at IR Smartt Inc. He leads the strategy and business development teams, driving the company forward. Tim's previous professional experience included extensive work in Journalism and Online Publishing.