Where the ac­tivists roam

The Globe and Mail (Atlantic Edition) - - GLOBE INVESTOR - KHALED ENIBA Khaled Eniba works in the fi­nan­cial and risk unit of Thom­son Reuters and spe­cial­izes in bank­ing and re­search.

What are we look­ing for? U.S. com­pa­nies tar­geted by share­holder ac­tivism cam­paigns ini­ti­ated this year. The screen Ac­tivists’ goals and tac­tics vary greatly. Some may ac­cu­mu­late sig­nif­i­cant stakes in a com­pany, at­tempt­ing to gain con­trol of the board through proxy con­tests, and spin off a more prof­itable di­vi­sion. Oth­ers may seek mi­nor­ity board rep­re­sen­ta­tion and pro­pose changes to ex­ec­u­tive man­age­ment, re­turn­ing ex­cess cash to share­hold­ers through stock buy­backs or div­i­dends, or de­liv­er­ing bot­tom-line ex­pan­sion through op­er­a­tional ef­fi­cien­cies.

Com­pa­nies sus­cep­ti­ble to ac­tivist in­vestors broadly ex­hibit sim­i­lar char­ac­ter­is­tics such as un­der­per­form­ing their peers in an ex­pand­ing sec­tor, low price-to-book val­ues or large amounts of idle cash. Ac­tivist funds ap­ply pro­pri­etary re­search meth­ods seek­ing com­pa­nies with th­ese traits, and ad­dress th­ese is­sues by ex­er­cis­ing their rights as share­hold­ers, pres­sur­ing man­age­ment to change busi­ness strate­gies, divest non-core as­sets or, as men­tioned, re­turn ex­cess cash to stock­hold­ers.

Ac­tivists’ abil­ity to iden­tify and de­liver on th­ese ini­tia­tives can un­lock share­holder value, which can ben­e­fit non-ac­tivist in­vestors as well.

Our screen high­lights the five largest U.S. com­pa­nies by mar­ket cap­i­tal­iza­tion tar­geted by ac­tivist cam­paigns an­nounced this year. More about Thom­son Reuters Thom­son Reuters (thom­son­reuters.ca) de­liv­ers trusted news and in­tel­li­gent in­for­ma­tion to more than one bil­lion peo­ple in 140 coun­tries every day. Our con­tent, soft­ware and tech­nol­ogy sup­port the way pro­fes­sion­als work in a rapidly chang­ing, ever more com­plex world. Thom­son Reuters Eikon (thom­son­reuter­seikon.com) is the plat­form used by fi­nan­cial and cor­po­rate clients to ac­cess top re­search, port­fo­lio an­a­lyt­ics, chart­ing and screen­ing for every as­set class. What did we find? The five com­pa­nies that met our cri­te­rion are ranked by mar­ket cap­i­tal­iza­tion. The ta­ble is bro­ken down as fol­lows:

6 An­nounce­ment date: When the ac­tivist cam­paign was made pub­lic, ei­ther through a reg­u­la­tory fil­ing or through a man­age­ment news re­lease; 6 Tar­get: The com­pany sub­ject to share­holder de­mands; 6 Ac­tivist: The ac­tivist fund that ini­ti­ated the cam­paign;

6 Stake at an­nounce­ment: Per­cent­age of out­stand­ing shares held by the ac­tivist.

Ac­tivist de­mands in­clude: “strate­gic di­rec­tion,” of­ten re­fer­ring to merg­ers-and-ac­qui­si­tions-re­lated ac­tivism; “seek al­ter­na­tives,” sug­gest­ing a re­view of op­er­at­ing and strate­gic plans fo­cus­ing on cap­i­tal ex­pen­di­tures or fi­nan­cial re­struc­tur­ing; and “board-re­lated,” mean­ing a bid to gain board rep­re­sen­ta­tion to in­flu­ence fu­ture cor­po­rate strat­egy.

This com­men­tary does not pro­vide in­di­vid­u­al­ized ad­vice or rec­om­men­da­tions for any spe­cific sub­scriber or port­fo­lio. In­vestors should con­duct fur­ther re­search be­fore in­vest­ing.

Ac­tivists’ abil­ity to iden­tify and de­liver on th­ese ini­tia­tives can un­lock share­holder value, which can ben­e­fit non-ac­tivist in­vestors as well.

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