07:26
Faizan
A few decades ago, the so-called shareholder activists of today were considered corporate raiders. Carl Icahn, a seasoned shareholder activist, was just one of the investors deemed to be a corporate raider through the 1970s and 1980s. What was seen back then as a negative force, is now starting to be seen as more of a positive force for the future of big corporations, sometimes unlocking very significant amounts of shareholder value.
Shareholder activists are typically defined as those investors who decide to accumulate large stakes in companies, many of whom with multi-billion-dollar market capitalization's, before proceeding to utilize their shareholder voting rights to catalyze change. The typical hedge fund will use their own developed investment strategy, which will usually take a specific approach such as long/short equity, making passive investments and sometimes holding their positions in stocks for many years. In contrast, activist investors take a more hands-on, aggressive approach; rather than waiting for change to happen, they make change happen.
Some of these types of investors may seek to intimidate, but others are happy to work alongside their targets' management teams, even by claiming a seat on the board. However, often the changes activist investors wish to incite are against what the currently inhabitant management teams believe to be optimal for their respective companies. Thus activist investors often target the managers themselves, arguing that they must be replaced. Other suggestions include downsizing and cost-cutting initiatives, right through to spinning off non-core operations and even complete liquidation.
To stymie the power of these activist investors, companies have historically taken measures such as poison pills, golden parachutes and leveraging their respective balance sheets to make themselves less appealing to potential hostile takeover artists. With the wide availability of debt financing in the 1970s and 1980s, the so-called corporate raiders could threaten their targets with putting together the financing needed to take over their entire organisations. This sometimes to led to what is known as greenmailing, where target companies were more or less forced to buy back the intruder's stock at a giant premium so that they would leave. This was of course all to the great expense of the rest of the company in question's shareholder base.
Fast forward to modern day, corporate raiders have gone through re-branding. Carl Icahn, who was once considered a villain, is now thought of by many as a hero. Whether or not you agree personally with this assertion, activist investors are certainly more long-term thinkers than their counterparts a few decades before. There are always exceptions to the rule, but activist investors today definitely seem to be instigating more lasting change in the companies they target, often backed by other shareholders through social media and even large financial institutions.
Shareholder activists are typically defined as those investors who decide to accumulate large stakes in companies, many of whom with multi-billion-dollar market capitalization's, before proceeding to utilize their shareholder voting rights to catalyze change. The typical hedge fund will use their own developed investment strategy, which will usually take a specific approach such as long/short equity, making passive investments and sometimes holding their positions in stocks for many years. In contrast, activist investors take a more hands-on, aggressive approach; rather than waiting for change to happen, they make change happen.
Some of these types of investors may seek to intimidate, but others are happy to work alongside their targets' management teams, even by claiming a seat on the board. However, often the changes activist investors wish to incite are against what the currently inhabitant management teams believe to be optimal for their respective companies. Thus activist investors often target the managers themselves, arguing that they must be replaced. Other suggestions include downsizing and cost-cutting initiatives, right through to spinning off non-core operations and even complete liquidation.
To stymie the power of these activist investors, companies have historically taken measures such as poison pills, golden parachutes and leveraging their respective balance sheets to make themselves less appealing to potential hostile takeover artists. With the wide availability of debt financing in the 1970s and 1980s, the so-called corporate raiders could threaten their targets with putting together the financing needed to take over their entire organisations. This sometimes to led to what is known as greenmailing, where target companies were more or less forced to buy back the intruder's stock at a giant premium so that they would leave. This was of course all to the great expense of the rest of the company in question's shareholder base.
Fast forward to modern day, corporate raiders have gone through re-branding. Carl Icahn, who was once considered a villain, is now thought of by many as a hero. Whether or not you agree personally with this assertion, activist investors are certainly more long-term thinkers than their counterparts a few decades before. There are always exceptions to the rule, but activist investors today definitely seem to be instigating more lasting change in the companies they target, often backed by other shareholders through social media and even large financial institutions.
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