Activist Insight’s annual review of shareholder activism is available now. Here’s an excerpt from the introduction/summary.
One thing that no longer seems surprising is that activism continues to increase, affecting 551 companies in 2015. This growth has been dramatic and sustained in North America, uncertain in Europe and stop-start in Asia. Nonetheless, the period of turmoil in financial markets at the end of the year suggests this is not likely to be a deterrent to further increases in activism. Indeed, a growing number of activists are “first-timers” or occasional practitioners of the trade.
It is hard to predict the implications this trend may have. Performance-wise, 2015 was not a good year for activists. The Activist Insight Index was down 3% at the end of the third quarter, and activisttargeted US stocks fell by an average of 8%, including dividends, through the year-end on an un-weighted basis. What is true for activists is true for the asset management industry as a whole, however, and seasoned campaigners appear resilient to the sort of shocks they felt in 2015.
Many activists had quite reasonable performance in 2015, and stocks like Microsoft, Darden Restaurants and General Electric added value. Moreover, where activists made mistakes, it was far from clear that activism was the cause of their trouble. False starts to a recovery in commodity prices, questionable business practices in the pharmaceuticals sector and for-sale companies with no buyers have all played their part. Investors in activist funds expect their managers to foresee and avoid pitfalls such as these, but critics of activism cannot infer that shareholders may only play a nefarious role by intervening in corporate affairs.
Despite activists seeing an even greater number of the changes they called for enacted, the bar continues to be set high; the proxy contest at DuPont, where a series of changes at board level and operational promises ensured Nelson Peltz’s defeat, highlights that point. Qualcomm, Yahoo, Yum! Brands and Rolls-Royce Holdings have not folded at the sight of an activist, but have proceeded at their own pace. Even so, companies will be reviewing their options more frequently in anticipation of activists. It is not easy to imagine the merger of DuPont and Dow Chemical in an environment devoid of activists, for example, but equally unlikely that it would proceed against the better judgment of directors and executives.