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Planning Is No Match For Momentum of Activist Funds


Steven Solomon has written an excellent article for the New York Times [1] about the trend of Shareholder Activism that is sending jitters through pubco C-suites. He notes that as activist funds become more widespread, and activists successfully take the wheel of brand name public companies, it appears to be developing a sort of critical mass, allowing the activism movement to travel along apace. The momentum is quickening as boards realize that there is little to be done once a well-drilled team of activists has decided to mount an assault.

The Momentum of Activism

Mr. Icahn was able to appoint three directors,[2] two of whom are sitting on the new chief executive search committee. Hertz quickly realized that the easiest thing to do was give in.

Activist investors have come a long way from disgruntled shareholder groups kvetching about expense accounts and stock options. Activist firms are driven by people adept at finding weak points in corporate strategy and bringing them into sharp relief as a way of winning the hearts andminds of the Street toward their cause. They are collaborating with proxy firms and legal departments that make them immune to poison pill resolutions and advance notice bylaws that have forestalled amateurs. These firms attack with determination and sharp instruments. They make their intentions clear – and they follow through. Boards are dead in the water because the activists say they’re dead in the water. Owing to their popularity and batting average, what they say goes.

As per Soloman’s article:

So far this year, activists had a success rate of 72 percent in proxy fights, up from 60 percent in 2013, according to a research firm.

Activists pick up steam

And that’s just their batting average with targets that come down to an actual proxy fights! In handling activist investors, Hertz and HP both opted for some form of capitulation to avoid a drawn-out, money-losing ordeal. Effectively, whether the activist’s case for reform is with merit or not is really beside the point. The popularity and inevitability that comes with an activist assault in the current climate creates enough momentum to carry a determined and well-prepared activist firm’s story home where it counts.

The changes they make will either work out well and get the credit for any residual value beyond the initial “Activist Alpha”, have little or no effect and be shrugged off and forgotten, or fail miserably and be buried as causes for a stock’s collapse as the new management points to factors beyond its control (most likely, damage done by previous management).

Famed Activist Investor Carl Icahn’s website, Shareholders Square Table, features an illustration that could be described as a romanticised version of the activist process. The website is a collection of Icahn’s varied thoughts on business trends, and on specific companies. The social media policy is front-and-center, because if there’s one thing Icahn knows, it’s how to use information flow to drive sentiment.

Where to find activist investors online

Shareholders Square Table’s policy was filed in response to the SEC’s social media guidance issued on April 2, 2013. The social media policy on the website explicitly mentions twitter and the website as potential sources of material information. Icahn filed an amendment [3] to the policy on October 8th, 2014, alerting the world that he’s joined everyone’s 13-year-old niece on Tumblr. This seems odd at first glance. The world of tumblr finance is tiny, and the high-profile financial media personalities have yet to adapt to being online activist investors. A tumblr search for “money” brings up blogs dedicated to tacky displays of wealth rather than MSNBC. Upon consideration, it makes perfect sense. Tumblr is a content delivery success, and the Icahns of the world have built empires on being able to advance lines of thinking in compelling ways across all channels to which people are listening.

If they can reach the audience quickly and convincingly, making a flat-footed IR department appear oblivious, out of touch and unprepared, then the important part gets done all at once. When everyone who cares and matters is already on side and sees it his way, the rest is practically a paperwork exercise.

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.