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Companies faced a record number of attacks from activist investors in 2023, as disgruntled shareholders sought to fire directors or force companies to sell companies whose stock prices had fallen.
There were 252 new campaigns globally, according to a report by investment bank Lazard, an increase of 7 percent from the previous year. Only a few companies have been safe from scrutiny, with a wide range of activists targeting major corporations such as Walt Disney, Salesforce, and Starbucks.
The Europe and Asia-Pacific regions saw record levels of activity, with the United Kingdom and Japan leading the pack. There were 69 campaigns launched in Europe, most of which were M&A related, and 44 new campaigns in the Asia-Pacific region where local hedge funds were the most active participants.
“Activity today has a very regional dynamic,” said Rich Thomas, a managing director in Lazard’s Capital Markets Advisory Group. “Global campaigns are at an all-time high because (Asia Pacific) and Europe had a breakout year.”
Activists typically buy shares in companies and push for changes they believe will help increase the stock price. In its early years, investors attacked companies and their leaders in public letters, but advisers said much of the negotiation between activists and targets now takes place behind closed doors.
However, a number of high-profile fights have spilled over into the public forum, increasing pressure on executive teams dealing with slowing economic growth and rising interest rates.
Trian Partners said last year it would seek two seats on Disney’s board, setting the stage for one of the most contentious proxy battles in years and pitting its co-founder Nelson Peltz against returning CEO Bob Iger.
Carl Icahn, whose public investment firm has been attacked by activist short-seller Hindenburg Research, has launched an aggressive campaign against Illumina over its acquisition of cancer test developer Grail. Last December, the genetic sequencing company said it would withdraw its investment from Grill.
While hedge funds like Elliott Management and Third Point have historically dominated the activity, this strategy is increasingly being deployed by other types of shareholders. More than 40 percent of campaigners last year did so for the first time, according to Lazard, as the list of disgruntled investors companies have to deal with grows.
Europe in particular has seen a significant rise in the number of activists for the first time, after many had previously declined during the cost of living crisis and rising energy prices, Thomas said.
“The barriers have fallen and frustrated shareholders are now launching more campaigns,” he said. “We are seeing diversity and breadth in this activist landscape.”
Starbucks is facing a challenge from a coalition of labor unions called the Center for Strategic Organizing, which has launched a proxy contest to replace three of the company’s directors with its own candidates due to “severe human capital mismanagement.”
The proxy fight, if it continues, is expected to be a test case of whether it is possible to win over a larger shareholder through single-issue battles, and demonstrate the threat companies face from even shareholders with small stakes.
According to Lazard, global proxy rules introduced in 2022, which ensure that all board candidates appear on a company ballot, have had little impact on the number of board seats won by activists.
However, companies are now quicker to call a ceasefire with activist investors to avoid proxy contests. Only 37 percent of campaigns that ended up winning a board seat lasted more than 90 days last year, down from 44 percent, and 34 percent settled within one week, according to Lazard.
Over the past year, there has also been a resurgence in many hedge funds rallying around the same target. At one point, Salesforce had seven activists on its shareholder register, according to people familiar with the company, including ValueAct, Elliott and Third Point.
“There was this discussion about wolf packs that would attack small businesses, but you rarely see those campaigns in a large-cap company because it was difficult to get enough equity and manage the operation,” said Bruce Goldfarb, founder of Hypermarket. . Agent solicitation firm Okapi Partners.
“There are now a number of activist hedge funds that have to take larger positions to be influential to their investors, and so they end up achieving the same goals, often without any collective action.”