In the economic likelihood of an imminent recession and volatile reality where capital is elusive, celebrated activist investors are targeting companies that have been fervently spending in pursuing growth opportunities in the first half of 2023, as per a report by Reuters.
Activist investors are pushing companies for dividends and buybacks and asking for more focus on margins and profitability. In the second half of the year, the market for mergers and acquisitions is anticipated to improve while the possibility of the U.S. Federal Reserve easing off its hiking cycle persists, and companies dropping substantially in valuations will attract more activists to campaign for a sale, as per the report.
Under the incredible canopy of ‘value investing’, even though shareholder activism isn’t a standard form of investing, it makes the cut because it still transforms the company’s worth. An activist investor will try to acquire major stakes in a company and shake up the business in a way which proves to be profitable for the investor.
While there are a few serial activist investors who have certainly made a mark on the industry, investment style has gradually been picking up popularity.
According to a report by Fortune, activist investors targeted 967 companies on the global scale, rising from 913 in 2021.
Crediting the market volatility and challenges of the macro environment, the first half of 2022 was the record-breaking highest year ever in shareholder activism. Activists found lucrative opportunities because stock prices were down. But, inflation had investors worried.
Popular Activist Investors And What They Look For
Who are these activist investors and what do they look for in a company? What demands do they require to be fulfilled?
Activist investors are shareholders who purchase a quantum of a public company’s shares in order to significantly swivel the company. Any company that is mismanaged or could run more profitably or has excessive costs or other identifiable problems, can come under the target radar of an activist investor who believes they can make the company more valuable.
Activist investors need to witness a change in strategy and need to be in the loop for capital allocation policies. Another decisive component of the activist campaign is how ESG affects the institution, in a good or a bad way. The biggest aspect of seeing an uprise in the demand for companies is interlinked with corporate governance – with changes in the board or management. There is also an interest magnifying towards companies dealing with environmental issues such as carbon transition and social issues such as DEI initiatives and social justice.
Here are 5 celebrated activist investors in North America in 2023.
1. Carl Icahn
Net worth: $18.6 billion
Firm: Icahn Capital Management
American financier Carl Icahn is one of Wall Street’s most feared and most successful investors that has been shaking up the American market for nearly 5 decades. Being a prominent pioneer of shareholder activism with his stint as a corporate raider in the 1980s, a majority of Icahn’s equity holdings are still activist in nature. While his primary investing vehicle is Icahn Enterprises, he also runs an investment hedge fund which is monetarily aided by his personal finance.
Icahn grew up in Queens and graduated from Princeton in 1957 with a degree in philosophy. As a billionaire investor, Icahn focuses on companies with limited organic growth opportunities or weak corporate governance.
He was one of the first investors to have adopted the contrarian investment strategy where Icahn buys stocks that ‘no one wants’ and subsequently is the reason behind the Icahn Lift phenomenon where a stock’s value price increases after Carl Icahn purchases shares.
Some of his famous deals include a proxy contest at Occidental Petroleum, American Can, Texaco, and Motorola’s sale to Google and Uniroyal. Icahn accused Anadarko Petroleum’s CEO of mismanaging after the acquisition and drove the hostile takeover bid of Xerox for HP. He’s also known for persuading Volkswagen’s Traton to increase its takeover offer for Navistar International and his failed attempt at breaking up Time Warner and Yahoo.
2. Daniel Loeb
Net Worth: $3.5 billion
Firm: Third Point Partners
With nearly $181 million in AUM (Assets under management) as per fund ranking site SWFI, Dan Loeb’s Third Point Partners is a global investor which was founded in 1995 and is known for enlisting an event-driven and value-oriented investment style. The firm identifies circumstances where the activist Loeb can expect to be a catalyst whose actions will unveil value.
Loeb is infamous for his ‘Poison Pen’ with which he writes insulting letters that belittle the management of the companies he’s interested in. His firm campaigns at Sony, Essilor Luxottica and Campbell Soup. He was involved in trying to shake up the mired management of Yahoo.
Lately, his deals include making $20 million off the purchase of Agribrands by Cagrill by pitting the original tender of Ralcorp as ‘low’. Loeb also helped Potlatch’s stock value double when he urged Penn Siegel to step down from the position of CEO. Less than a week after Third Point told entertainment giant Walt Disney Co. to embrace the industry shift by suspending dividends and veering those funds to the streaming service, Disney decided to prioritize its video streaming service.
3. William Ackman (Bill Ackman)
Net Worth: $3.5 billion
Firm: Pershing Square Capital Management
Bill Ackman founded Pershing Square Capital Management in 2004 and rose to fame when he topped Wall Street with his activist wins on Allergan and Canadian Pacific. When Covid-19 desecrated the markets in March 2020, Ackman still managed to make a profit of $2.6 billion on his $27 million investments in credit hedges.
On what the firm seeks as potential targets, Ackman said that he looks for mature unicorns that are either privately sponsored by equity or family-controlled.
He has previously been successful at shaking up the failed management at Target and made major changes in JC Penny. His first famous deal included succeeding at pressuring Wendy’s to spin off its Tim Hortons brand in 2004. He has since invested in Starbucks and also sponsored $4 billion for the largest-ever SPAC.
While he had hit edgy times after losing $3 billion on Valeant but gaining $1 billion on Allergan after trying to merge them both in 2014, Ackman has also picked up and sold the debt on the real estate project Stuyvesant Town in New York.
4. Philip Goldstein
Net Worth: $26.6 million
Firm: BullDog Investors
Acclaimed for its activist investment campaigns focused on closed-end mutual funds, Philip Goldstein’s hedge fund BullDog Investors uses a value-driven investment strategy. Goldstein was formerly a civil engineer before he began investing in his late 40s.
Dean Witter associate Steven Samuels introduced Goldstein to potential clients in 1989 and 3 years later, with $700,000 they both established BullDog Investors. By 1996, Goldstein and his partners at the firm began focussing on liquidity situations such as asset sales to utilize the activist approach. In the increasingly crowded universe of over 5000 Mutual Funds, ETFs and closed-end funds, Goldstein’s management of the Special Opportunities Fund [NYSE: SPE] is revered to be an approach which demonstrates value to shareholders, as per Forbes.
In this value-centric strategy, Goldstein invests in funds if the market value and its net asset value (NAV) are indicative of a significant gap. He buys shares of a fund when it is trading at a discount and amasses the support of shareholders. He then liquidates the funds’ assets or converts the fund to an open-ended one, returning them to shareholders.
5. Elliott Management Corporation
Net Worth: $8 billion
Firm Founder: Paul Singer
With $56 billion in AUM, Elliott Management was founded by Paul Singer in New York in 1977 with a prominence on convertible arbitrage. Singer is popular for his combative and high-profile deal making. As one of the largest activist funds in the world, the privately owned hedge sponsor provides services to public equity and fixed-income markets across the globe while also aiding large institutions and high-net-worth families.
Elliott has diversified its techniques by staking investments in large companies such as eBay, Twitter, Softbank, Hyundai, Evergreen Coast Capital, Barnes and Noble and Veritas Capital.
The firm employs a conservative approach with multi-hedge funds and is proliferating due to its target on firms undergoing reorganization, bankruptcy or any sort of corporate restructuring and even in alternative markets of sovereign debt, bonds, warrants, stocks and real estate.
