Activists storming UK plc
NELSON Peltz, the 81-yearold billionaire whose battle with Disney will come to a head this week, is one of a now ageing breed of Wall street agitators who first gained notoriety in the eighties.
so-called ‘activist’ investors such as Peltz and his fellow octogenarian Carl Icahn – one of the inspirations for Gordon Gekko in the 1987 film Wall street – take stakes in companies, then chivvy bosses into making changes. They do not like being portrayed as predators or asset strippers.
Peltz describes himself as a ‘constructivist’ who works with management, which might set Disney boss Bob Iger’s eyes rolling. Carl Icahn claims that in his ninth decade, he is on a mission to ‘rectify glaring injustices’ perpetrated by corporate America. This has included taking a small activist stake in McDonald’s to improve its treatment of pregnant sows.
His reinvention as an anti-animal cruelty advocate may be surprising, but in any event, his campaign failed. Having been a largely Us phenomenon for years, activism is taking off elsewhere.
The UK has been the biggest target in europe. Activists have turned on FTse 100 boards from Glencore – where an Australian hedge fund is pushing to move its listing to sydney – to betting group entain.
Peltz has elbowed his way onto the board of Unilever.
elliott Investment, led by another veteran Us financier, Paul singer, is harrying bosses for change at the scottish Mortgage trust. In a report earlier this year, management consultants Alvarez & Marsal (A&M) identified 146 companies in europe at risk from activists in the next 18 months.
By far the largest number of those, 54, were in the UK, twice the figure in Germany, the next on the risk list.
A&M predicts this will increase in the next 18 months, partly because consumer and energy companies are well-represented on the UK stock market. It believes these sectors look juicy to the activists.
VALUATIONS of UK companies, measured by price-to- earnings ratios, are 17pc below the european average, which offers a chance to buy in at an attractive price. Unsurprisingly, incumbent managements don’t like these corporate rabble-rousers, whose arrival at the gates is a none-toosubtle criticism of their own performance.
Peltz and co are painted as self-interested agent provocateurs. Unease is compounded by the fact they can throw their weight around without having any meaningful ownership.
often, they use derivatives or borrow stock from investors who ought to know better, rather than build a genuine stake. Does activism work? sometimes. Changes they demand are most commonly to break up a company, to give cash back to shareholders, to do a deal or to allocate capital differently.
This can give complacent boards a kick or accelerate change that was planned anyway. But the long-term results are unclear.
Goldman sachs, in a study last year of more than 2,100 activist campaigns since 2006, found that initially shares in target companies outperformed. This, however, typically turned negative after six months.
The conclusion is that activists do not always produce good results, but they can be a healthy catalyst for change. As they scan the market for their next prey, boards should contemplate what they can do to make their business less vulnerable.
As Amanda Blanc, chief executive at Aviva could testify having seen off an activist, the best defence is to run a good ship.