Activist investors can have a positive or negative impact on companies.
Activist investors can block mergers
Activist investors often oppose and block firms’ mergers. Find below an example of an activist investor group opposing and blocking a merger between a Swiss chemicals company and an American multinational manufacturer.
Clariant and White Tale Holdings
In 2017, activist investors asked for an independent strategy review and three board seats at Swiss chemicals company Clariant after forcing the company to renounce a planned $20 billion merger with chemicals manufacturing company Huntsman Corporation. White Tale Holdings, an activist investor group that incorporates Keith Meister’s Corvex hedge fund, has menaced to call an exceptional shareholders meeting if its requests are not granted. Clariant was pressured to react to an outbreak of cost-cutting transactions that occurred in the chemicals industry worldwide. It is part of an increased interest by US activist funds in European companies, specifically in Switzerland. However, Clariant agreed to merge with Huntsman Corporation in 2017. According to Clariant, this merger would bring it synergy savings and scale. Nevertheless, Tale Holdings claimed that the deal underrated Clariant and alternatives had not been appropriately examined. The activist investor group said that it had a stake of over 20% in Clariant which is enough to stop the deal at a shareholders meeting, forcing both companies to renounce their merger plan.
White Tale wanted three of their representatives on the Clariant board and pertinent strategy committees. Clariant promised to give attention to White Tale’s plans as well as its requests for board seats. Clariant said it had discussed with White Tale. In a joint statement, Peter Huntsman, the CEO of Huntsman, and Hariolf Kottmann, stated that some other shareholders supported White Tale’s resistance to the transaction and Clariant was not sure whether it could secure the two-thirds shareholder approval that is required by the Swiss law to approve the transaction. Under these circumstances and due to high uncertainty that has been created for both companies, Clariant and Huntsman have agreed to terminate the merger agreement.
Activist investors can increase the longevity and sustainability of companies’ innovation
According to a research conducted by two professors from Columbia Business School Professor Wei Jiang and Arthur F. Burns, activist investors can generate positive results. Evaluating the impacts of hedge fund involvements particularly on corporate innovation, Professor Jiang disclosed that third-party involvements can literally increase the longevity and sustainability of a company’s innovation, specifically with inventions and investors. Hedge fund activism enables companies using research and development dollars more ably, opposing commonly held beliefs that hedge fund activism concentrates on unsustainable short-term goals. Jiang further said that when it comes to corporate innovation, hedge fund activists can enable companies to become leaner, more focused, and more effective in their innovation.
Jiang added that according to research, companies’ patent sales augment after hedge fund activism, and bring about the arrival of new inventors who bolster the core competence of the company. Therefore, hedge funds have positive long-term impacts on innovation potential, and hedge fund activism should be considered as a catalyst. Prominent profiles such as Carl Icahn have given third party activism a good reputation. Another research conducted by Professor Alon Brav from Fuqua School of Business found that board members added after an activist event improved their expertise in technology and innovation more than those added at other control firms. The research also showed that CEOs hired or kept after activist interventions have longer tenure and better job security than at control firms, which allows more innovation.