The age of the activist investor

UNILEVER and the company which owns Dulux paints, Akoz Nobel, have both decided to break themselves up and return money to their shareholders. So what, you may be think. But this should be considered in the backdrop of Cadbury’s takeover by Kraft in 2010.

Activist investors are fund managers with deep pockets who perceive value so buy into a business and shake things up.

The activist investor is more familiar in the US, but with the weakness in Sterling, opportunities in the UK and Europe are becoming more irresistible.

These activist investors usually target publicly quoted companies and after becoming the significant or majority shareholder, the investors seek to de-list the companies in order to restructure.

This is not something new but may be more noticeable given the size of the targets is so substantial now.

The activist investor’s decision is predicated on having scrutinised the target, its valuation and opportunities that it can create.

That is why, in respect of the Dutch company Akoz Nobel which owns Dulux, you get someone as rich and famous as Warren Buffet involved.

Activist investors are able to achieve their goal of wealth creation by stripping away complex layers around what are fundamentally good businesses with a view to reduction of overheads and costs to create cash.

Some see this as a short term outlook.

But bear in mind not all target businesses have grown organically – most have expanded through acquisitions.

It is difficult to criticise or judge activist investors who clearly identify opportunities which the current owners of the target businesses do not.

Further, activist investors place their own money at risk to generate those opportunities, and value beyond the target current market value in the short to medium term, whereas target businesses are complacent and content to maintain an existing level of dividends and market value. Colin Rodrigues is head of the corporate team at Hawkins Hatton