How Activist Investors Operate

An activist investor is an individual or shareholder that seeks to obtain a controlling interest in a target company by acquiring seats on the company’s board of directors. Activist investors aim to make consequential changes to the target company and unlock perceived covert value in the target company. There are three types of activist investors and these are individual activist investors, private equity firms, and hedge funds. Generally, active investors cannot exercise direct control because they detain comparatively small stakes in a firm. They depend on the firm’s internal governance systems to execute changes instead.   

An analysis of the operations of activist investors is conducted in this article.

The Operations of Activist Investors  

Activist investors have been operating in the marketplace for a long period of time, but they will continue due to the recent amalgamation of a convenient regulatory environment and profusion of funds to invest. Activist investors spend significant time conducting advanced analysis to finesse their request thesis.   

Europe  

Activist campaigns in European companies  

Activists are seeking more targets across Europe. US activist investment practices are progressively the norm in Europe. US activists had made public requests on 20 per cent of the total number of European companies which received public demands. Activist campaigns (activists deploying>$500m) in European companies have significantly increased from 2014 to 12 months to Q3 2018. For example, activist campaigns (activists deploying>$500m) in UK companies have increased from about 20 to about 40 from 2014 to 12 months to Q3 2018, and activist campaigns (activists deploying>$500m) in Swiss companies have increased from about 40 to more than 60 from 2014 to 12 months to Q3 2018.  

Deloitte research based on Activist Insight data showed that activist investors currently have nearly $300 billion invested apace with their public requests for change. Analysts see the European stock markets and company valuations as being less stretched than in the United Stated and this favours the rise of activist investors in Europe. Withal, the information service Activist Insight stated that in 2009, there were only six activist campaigns targeting European companies valued at more than €1 billion. On the other hand, seven years later, there were forty, including prominent profile moves on German companies including Comdirect Bank, Schaltbau Holding AG, Stada, and Gea. One major change has been that institutional investors, including investment managers and pension funds are supporting activist investors. Some have started applying their strategies.   

   

Asia  

Activist campaigns in Asian companies  

Activist campaigns (activists deploying>$500m) in Asian companies have also increased from 2014 to 12 months to Q3 2018. For example, activist campaigns (activists deploying>$500m) in Japanese companies have increased from about 50 to more than 110 from 2014 to 12 months to Q3 2018, and activist campaigns (activists deploying>$500m) in Chinese companies have increased from about 60 to about 140 from 2014 to 12 months to Q3 2018. According to JP Morgan, in 2011, there were only 10 activist campaigns in Asia, accounting for 12% of all activism outside the United States Financial Times, 2018). In 2017, that number increased to 106, 31% of non-US campaigns. Activist investors, frequently leading hedge fund managers from the United States, have progressively obtained equity stakes in some Asia’s prominent profile companies to seek to influence change. This wave has shown itself in assertive attempts to stop mergers. New market turmoil in Hong Kong and mainland Chinese markets has emphasised the importance of companies being explicit and convincing in starting their long-term investment stories. On the other hand, the companies that don’t could experience bigger share price declines when markets stumble other than being more exposed to activism.  

Elliot management and Samsung Group

In 2015, an appeal from US activist fund Elliott Associates to stop the merger of two Samsung group companies (Cheil Industries and Samsung C&T) was rejected by a Seoul Court. The court stated that the proposed deal didn’t represent an unlawful transfer of value to investors including the group’s founding family. Elliot, which has taken a 7.1% holding in Samsung C&T, had applied for a court order against its proposed sale in an all-share deal to Cheil Industries, where the current chairman of Samsung Electronics Lee Jae-yong is the biggest shareholder. Nevertheless, the Seoul Central District Court argued that the merger terms were conformed to South

Korean law, a decision which analysts anticipated. On the other hand, Elliot had claimed that the merger aimed to benefit from the inequality in valuation between both companies. The market evaluation of Cheil had increased to 134 times its forecast net profit for 2015 when the merger was made public in May 2015, while Samsung C&T’s share price dropped 29% in the six months before the deal. Elliot argued that they were disappointed with Seoul’s court decision and keep believing that the proposed merger is unfair and is not in the best interests of Samsung C&T’s shareholders. The company said they would keep seeking to block the proposed merger. 

 

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