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Equity Capital Activists Understand Storytelling


The effectiveness with which a company communicates its story is at the root of how companies are evaluated, both internally and by the Street. That isn’t to say that market performance doesn’t matter, but rather that it’s a reflection of human assessment of a story. Barry Ritholtz [1] often says that markets work because “monkeys love a narrative,” and an IRO’s job is to undertand that narrative better than everyone else. But knowledge of the story doesn’t necessarily mean command of it. It’s good to remember that there are others out there telling the world a different tale. They’re diligent, they’re resourceful, and they have a lot on the line. Equity capital activists should be respected as excellent storytellers who have the power to materially affect your organization.

The Activist Trend

The trend towards activist investing in equity capital management continues [2], as activist fund Marcato Capital Management very publicly offered some unsolicited, detailed advice to InterContinental Hotels on how they ought to run their hotel business.

The Financial Times’ Ashley Armstrong reports that:

Marcato Capital Management, which owns a 4pc stake in IHG, says the FTSE-100 company should consider a possible merger with one of six rivals: Starwood; Marriott; Hilton; Wyndham; Hyatt; and Accor. The activist investor made the claims in a 77-page report published on Tuesday.

A 77-page report that might as well be titled “A Detailed Account Of How You Are Doing Everything Wrong” sounds like the first step in a relatively cheap process that could end up earning Marcato the keys to a $9 billion hotel empire. IHG is characteristically effective, so we’re looking forward to their response and will continue to follow this story. It seems unlikely at this early stage that the Marcato/InterContinental situation will end up as drawn out and messy as the Darden/Starboard-Barington affair, but you never do know.

In many ways, Starboard-Barington’s coup was a textbook example of an activist campaign at work. Previously, we examined how Barington used illustrated data to walk shareholders through the re-organization that they aspired to. Today we’re going to take a deeper look at how activists use illustrated data to get their story across.

Case study in activist narrative

The Activist Consortium’s plan for Darden effectively amounted to taking the working animal that the Darden Brands board had stewarded directly to the butcher where it would be carved out into tasty and manageable cuts. Our last touch on this subject centered around how the activist fund used a rosy projection of a proposed re-organization (they graphed a value projection no fewer than 3 times in their presentation). But before the activists convinced their audience that the animal would look better as filets and chuck, they set out to show that it wasn’t doing anyone one any good walking around in its present state.

This was most likely the business intelligence chart that drew the activist consortium to Darden in the first place. Underperforming three peer groups and the index is bound to get some attention. This clear indication that something was wrong was framed above a quote from the Darden Chairman expressing disappointment about sales and earnings results. Just in case readers might consider stock chart analysis sophomoric, the activists gave us some fresh angles. Their version of the reasons for Darden’s shortcomings took on a graphic reality as the activists detailed what they perceived to be a lack of synergy, and a habitual over-spending on advertising and promotion that wasn’t delivering any value.



Having delivered an only-slightly-subtle caricature of present day Darden Brands (and their management) as a fat, oafish beast, meandering behind the pack, the activists set out to show how good it would look in the butcher case.

The Activist Strategy

Barington’s plan was to split the company up into three pieces, and to have those pieces target three different areas of the equity markets: growth, value/income, and Real Estate. To retail shareholders of an underperforming company, it doesn’t take long for this to look like a tasty idea. The activists did some research, arrived at attractive projections, and graphed it all out.



Under the backdrop of successful REIT spinouts and high growth division spinouts from restaurant giants like McDonalds, the plan looked pretty good. The cuts looked tasty.

The Company Response

The company had their own charts, handsomely distributed through a “Strategic Action Plan to Enhance Shareholder Value”[3]. They attempted to demonstrate that they understand storytelling by showing a more traditional stock chart sector comparrison that measured them against their peer group as a whole. They used a wider time angle which had them outperforming since the current CEO was appointed. They trumpetted total value returned to the shareholders and industry specific operating metrics that they led in. Going through it, though, one might wonder why a company who was doing so well needed a strategic plan to begin with.

The Proxy Result

Darden didn’t go down without a fight, eventually losing the proxy battle at the meeting. They may be wishing they hadn’t bothered. The NY Times Dealbook reports [4] that, with blood already in the water, Darden hired Goldman Sachs as a financial advisor, Wachtell Lipton as a special counsel, and Joele Frank for public relations, but none of it mattered.

Investors like to dream about potential value, and the activist group gave them what they wanted. Darden management may well have saved the money they poured into the fight by allocating it to a more effective content strategy campaign in the first place. There’s no telling whether a better illustration of company strategy would have prevented the value gap that got the investors’ attention, but it’s hard to imagine that Starboard and Barrington didn’t see a strategy vacuum in Darden’s IR that was ready to be exploited.

In the next installment of our slow motion replay of Darden’s demise, we’re going to look at how the activists used Darden’s traditional and social media profiles against them.

[1] Barry Ritholz: The Big Picture

[2] The Telegraph: Activist investor Marcato pushes InterContinental Hotels to consider a merger with a rival

[3] Darden Brands Strategic Plan To Enhance Shareholder Value

[4] New York Times Dealbook: As Activist Investors Gain Strength, Boards Surrender To Demands.

data visualization wins investors

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.