How YOU can profit from the activists INVESTMENT EXTRA

Pick shares in companies that are ripe for a shake-up

HUNDREDS of thousands of savers who own shares in Barclays are getting first-hand experience of a corporate raider.

The High Street bank is under siege from US activist investor Ed Bramson. The 68-year-old revealed this week he was plotting a vote which he hopes will win him a seat on the board.

Bramson wants to shake the bank up from the inside, and improve the share price. His modus operandi is to buy shares in a business, force the board to make changes to improve its fortunes and then sell out at a profit.

What’s not to like? The New Yorker wants Barclays to shrink its investment bank and reorganise its structure. If his strategy works, the stock should climb and shareholders will be raking in the money.

One snag: Jes Staley, the Barclays chief executive, thinks Bramson’s plan is a terrible idea.

And if Bramson’s scheme goes wrong – possibly after he has made his own exit – longer-term investors could find themselves in a sticky spot.

There’s a debate about whether activist investors like Bramson are heroes for shaking up complacent boards, or villains out merely to enrich themselves.

Whatever the morality – and it will vary in different situations – experts expect to see more activism this year, and canny investors could play the game. Broker Peel Hunt believes a number of London-listed companies will be shaken up by an activist. Others are targets to be bought by a competitor or to be prodded into action by a sharp management team with an eye-catching plan. Invest in these companies early, and you could make a quick profit. But the difficulty is in identifying them before the magic happens.

WH Smith is one firm identified by Peel Hunt as a promising bet, since it might look to separate its High Street arm from its travel business, which focuses on shops in train stations and airports.

Separating the two could help to unlock value, since often when companies sit together the market fails to appreciate the value of all the separate parts.

Analyst John Stevenson believes WH Smith’s management may be plotting such a break-up move themselves, but probably not in the short term since they have only just acquired another US business. If the bosses don’t act soon, new management or an activist investor might press for change.

Fund manager Estelle Menard, of CPR Asset Management, specifically looks for companies which are in the activists’ sights.

‘Activists should be able, with the help of shareholders like us, to manage to make restructuring compulsory for the company,’ she explains.

Tom Becket, chief investment officer at Psigma Investment Management, thinks several sectors of the stock market are ripe for an activist’s involvement.

He believes these include major pharmaceutical companies – such as Glaxosmithkline – that have become inefficient. He also believes the pharmaceutical sector will see takeovers this year.

Another tack is to rely on a new management team to inject life into a lacklustre business.

Menard claims the best time to invest in a struggling company in the hope of a shake-up is when new management are appointed.

She says: ‘You can be sure that they will clear out everything, create a new team, change the profile of the business.’

Investor activism has not quite reached the same pitch here as it has in the US, but it is gathering pace. Rolls-Royce has given a seat on its board to Bradley Singer, of US activist Value Act, which is its biggest single shareholder.

THE UK arm of Elliot Advisers, another wellknown US activist, has called for change at Dutch group Akzo Nobel, which owns the former ICI paint division Dulux in the UK, and at FTSE100 mining giant BHP Billiton. Its most recent move was to buy the Waterstones bookshop chain.

And British activist Crystal Amber wants to be a catalyst for change at bank note business De La Rue.

It can be profitable to try to hang on the coat-tails of a successful activist, but not all shake-ups will create value for all shareholders.

Tracksuit tycoon Mike Ashley undoubtedly has a long-term plan for Debenhams, in which he owns a near-30pc stake.

But his decision to vote chairman Sir Ian Cheshire and boss Sergio Bucher off the board this week has caused shares to plummet.

Investors should beware of activists who may only have a self-serving plan.