A corollary to the trend of rising shareholder activism is the increasing frequency with which target companies are facing multiple activist campaigns. Companies that have successfully defended activist campaigns in the past are not free to rest on their laurels – if the same issues persist, future attacks may be on the horizon.
The Wall Street Journal reports that 39 companies have dealt with more than one shareholder activist over the past year – a 95% increase since 2011. Companies that are underperforming seem to be a breeding ground for multiple shareholder activist activity, but there do not seem to be enough of them to keep pace with the sharp rise in activist investors. In 2014, Reuters noted that as stock markets strengthen, it becomes tougher to find suitable targets, so activist investors end up “chasing the same ‘low-hanging fruit’ – companies that have poor corporate governance or performance and are vulnerable to calls for change.”
Not only are multiple campaigns costly and time-invasive, but also entering into a settlement with one activist does not guarantee that other activists will be satisfied. This certainly played out this month when activist firm Pershing Square Capital Management LP acquired $5.5 billion in Mondelez International Inc. – the company that makes Oreo cookies – following the settlement of an activist campaign launched by Trian Fund Management LP 20 months earlier. North of the border, companies are not immune to multiple activist campaigns and those in Canada’s energy sector seem to be the most vulnerable. Take Bellatrix Exploration Ltd., for example. Reuters reports that two separate U.S. activist firms recently targeted the Calgary-based natural gas company.
One of the reasons for multiple campaigns could be that each activist may have a different motivation for targeting a particular company. As noted by the Wall Street Journal, activists with competing agendas may become more compelled to launch a campaign if a particular activist’s changes are adopted over theirs. This has certainly played out in Canada, where, as reported in the Financial Post, Agrium, Inc. faced a 10-month shareholder activist campaign by Jana Partners LLC in 2013, that demanded Agrium Inc. split its wholesale and retail businesses. Although Agrium, Inc. won that battle (having been represented by Norton Rose Fulbright Canada LLP), a mere 18 months later, ValueAct Capital Management LP launched an activist campaign, striving for growth and board representation.
Companies can remain vigilant against the threat of multiple activists by adopting certain strategies. By engaging in restructuring or acquisitions or appeasing shareholders with dividends and buybacks, a target company may be able to successfully mitigate against the risk of an activist campaign. A more proactive approach would see companies identifying issues before they arise by engaging investors, conducting perception surveys and undertaking regular assessments of the company from an activist perspective. These methods, however, are not foolproof and sources to the Wall Street Journal suggest companies should engage in “comprehensive enough change” to reduce the likelihood that activists will find something worth campaigning about.