With $25bn of capital deployed in new activist campaigns – the most in any quarter on record – the first quarter of 2018 marked the continued evolution of shareholder activism from a much-derided niche strategy into a mainstream form of investing and company engagement. The current activist landscape is characterised by three key themes explored in more detail below: increased targeting of smaller-cap companies, settlements between target companies and activist shareholders in lieu of prolonged proxy battles, and the rise of M&A-focused activism.

Background: what is shareholder activism?

Shareholder activism has its roots in the 1980s, when investors began purchasing large stakes in companies and then leveraging that ownership to agitate for change. Criticised by opponents as ‘greenmailers’ or ‘corporate raiders’ who sought only short-term personal gains at the expense of long-term benefits, these investors led high-profile campaigns against companies such as RJR Nabisco and TWA. In recent years, however, activists have made significant progress in shedding the stigma of 1980s-era corporate raiding. They have rebranded themselves as investors concerned about long term shareholder value by proposing strategic changes to languishing companies and suboptimal management teams.

Activist shareholders achieve these goals through a wide variety of approaches. One common tactic involves pressuring companies to undertake corporate governance reforms, such as changes in management and board membership. Once activists amass a sizeable ownership interest in a company (around 5 percent or more), they use that to advocate for a new CEO and board members. The market typically responds accordingly. For example, in 2017, CSX Corp. saw a $34bn overnight increase in its market value after Paul Hilal of Mantle Ridge LP (who had amassed a 4.9 percent stake in the company) merely proposed installation of a well-known, highly regarded new CEO and five new directors.

Jul-Sep 2018 issue

Cadwalader, Wickersham & Taft LLP