In the world of finance, activist investors have been making waves, and 2023 looks to be no different. Led by the seasoned billionaire Carl Icahn, these investors are gearing up to wield significant influence in companies they target. In this article, we will delve into the strategies and motivations of activist investors, explore their recent campaigns, and analyze the factors that make this year particularly promising for them.
In this Article
The Rise of Carl Icahn
Carl Icahn: An Elder Statesman in Activist Investing
Carl Icahn, a prominent figure in the world of finance, holds a modest 1.4% stake in Illumina, a genomics giant valued at $34 billion. Despite his relatively small ownership, the 87-year-old Icahn is well-known for turning his minor shareholdings into considerable clout within targeted companies.
Shakespearean Tactics: A Colorful Campaign Against Illumina
On May 25th, Icahn’s theatrical campaign against Illumina’s management will reach its climax at the annual general meeting. Using Shakespearean and Lincoln references in his 16-letter campaign, Icahn seeks to provoke a change in the company’s board of directors. This event marks a highlight of this year’s “proxy season,” when American firms elect their board members.
Activist Investors Amidst Economic Challenges
Activist Funds: A Challenging Year
The previous year was tough for activist funds, which experienced a 16% decline in value amid slumping stock markets. This setback led many observers to anticipate a strong resurgence in 2023.
A Subdued Quarter: A Closer Look
However, the first quarter of 2023 saw a 33% reduction in new activist campaigns compared to the previous year, as reported by Lazard, an investment bank. Transactional funds, which advocate for changes like spin-offs or company sales, faced challenges due to the decade’s most subdued deal-making environment.
The Deceptive Quietude
Truce Seekers: Avoiding Painful Proxy Battles
The apparent decline in activist campaigns may not be as significant as it seems. Many potential targets, concerned that the new corporate-governance rules favor activists, have opted for truce settlements rather than risk contentious proxy battles. Some high-profile truces include Trian’s agreement with Disney and Elliott Management’s decision to withdraw its director nominations from Salesforce’s board.
Target-Rich Environment: A Decade of Low Interest Rates
Fifteen years of rock-bottom interest rates and cheap money have created a fertile ground for activist investors. As the cost of capital rises, management teams find themselves under the scrutiny of activists who seek better discipline and efficiency.
Pursuing Ambitious Targets
Beyond the $50 Billion Mark: Targeting Large Corporations
In 2023’s first quarter, campaigns involving companies with market capitalizations exceeding $50 billion surged to a record high. Technology firms, which represented a quarter of all campaigns in the US last year, became an attractive target due to the pandemic-induced decline in digital technology.
Big Tech Under the Spotlight: Even Giants Are Not Immune
Not even the largest technology companies are safe from activist scrutiny. This month, hedge funds Pershing Square and Third Point revealed their investments in Alphabet, Google’s parent company. Although Third Point denies engaging in an activist campaign, they and Pershing could benefit from the efforts of TCI, another fund already challenging Alphabet’s high costs and ambitious projects.
Activism Spreading Worldwide
Exporting Shareholder Capitalism: American Activism Goes Global
American activists are now increasingly spreading their influence beyond US borders. High-profile fund managers from the US are engaging with shareholders globally, making it easier for them to enter foreign markets.
Japan’s Changing Landscape: Receptive to Activist Influence
Thanks to corporate-governance reforms over the past decade, Japanese companies have become more receptive to activist investors. New stock market guidelines require companies valued below the book value of their equity to disclose improvement initiatives.
Challenges and Confrontations
Activism Not Always Successful: Facing Resistance
Although activist campaigns often achieve success, there are instances where they face resistance. ValueAct’s recent proxy battle against Seven & i, a Japanese conglomerate owning 7-Eleven convenience stores, resulted in a loss. Additionally, Carl Icahn’s own firm, Icahn Enterprises, faced an attack by short-seller Hindenburg Research, alleging overvaluation.
Summary
Activist investors, led by Carl Icahn, are poised for a busy year. While the first quarter seemed relatively quiet, many potential targets opted for truce settlements rather than face contentious proxy battles. With a target-rich environment and large companies in their sights, activists are poised to make significant waves. As activism spreads globally, companies worldwide need to be prepared for potential confrontations.
Frequently Asked Questions
- What is activist investing?Activist investing involves purchasing a minority stake in a company to influence its management and strategic decisions actively. Activists often advocate for changes to unlock shareholder value.
- Who is Carl Icahn, and why is he significant?Carl Icahn is a billionaire activist investor known for leveraging his minority shareholdings to exert significant influence over targeted companies. His colorful campaigns and relentless pursuit of change have earned him a reputation as an elder statesman in the world of activist investing.
- Why did activist funds face challenges in the previous year?Activist funds experienced challenges in the previous year due to a 16% decline in value caused by slumping stock markets. Economic uncertainties and reduced deal-making opportunities impacted their performance.
- What makes technology firms attractive targets for activists?Technology firms became attractive targets for activists due to their retreat from the pandemic-induced boom in digital technology. Activists seek to force cost-cutting measures and divestiture of unprofitable businesses.
- How is activism spreading globally?American activists are increasingly engaging with shareholders globally, making it easier for them to enter foreign markets. Corporate-governance reforms in various countries have also made companies more receptive to activist influence.