Activist investor – definition and meaning
An activist investor is an individual or group that holds a considerable number of shares in a public company. Their aim is to apply pressure on the company’s management. Above all, they want to influence senior management’s decisions. The term activist shareholder has the same meaning.
The activist investor’s goal is often financial and may include, for example, increasing **shareholder value. They boost shareholder value by altering corporate policy, such as cutting costs. They may also try to force the company to adopt greener policies.
An activist investor may even attempt to get the company to stop doing business in particular nations.
** Shareholder value is all about making the shareholders of your company richer. If senior management has raised the value of the company’s shares, then it has delivered effective shareholder value.
To become a shareholder activist you do not need to become a majority stockholder. Even with just ten percent of outstanding shares, you can launch a successful campaign. Owning just ten percent is much cheaper than trying to acquire a company completely.
Well known activist investors
According to Stephen Gandel of Fortune magazine, activist investors had a banner year of publicity in 2014. However, when it came to investment returns, the results were just okay.
A business may become an activist investors’ target if it has excessive costs, or if there has been mismanagement. It may also become a target if the investor believes that could be better run as a private company.
Activist investor – a person or firm
Very wealthy individuals, hedge funds, and private equity firms are types of entities that may choose to act as activist shareholders.
American business magnate, Carl Icahn, who according to Forbes has a net worth of $21.3 billion, is a well-known activist investor. He has tried to bring about major changes at RJR Nabisco, Time Warner, Blockbuster, Yahoo, and several other companies.
Other well-known activist shareholders include Nelson Peltz, Bill Ackman, Eddie Lampert and Daniel Loeb.
In the US, you must file an SEC Form 13D if you own at least 5% of a company’s outstanding shares. Searching through SEC files is one way to look out for possible new activist investors.
Once despised as **corporate raiders, investor activism today has gained popularity among the media. Even among the general public, active investors today are more popular than they used to be.
** Corporate raiders are entities that buy companies, break them up, and sell them bit by bit.
When an activist investor targets and exposes fat-cat executives for their excessive incomes, everybody applauds.
Bill Ackman and Canadian Pacific Railway
Bill Ackman, the founder of hedge fund Pershing Square Capital Management LP, was head of a proxy fight against Canadian Pacific Railway. In an SEC 13D filing on 28 October 2011, Pershing Square indicated that it owned 12.2% of Canadian Pacific. Its stake eventually rose to 14.2%, making it the company’s largest shareholder.
Mr. Ackman took control of the board of directors, got rid of the management, and managed to double the company’s share price for himself and other stockholders.
According to Nasdaq, an activist investor is:
“A minority shareholder who seeks to influence decision making at a company by voicing concerns, engaging in a dialogue with management, or lobbying other shareholders for support. The demands could relate to changes in management, representation on the board, acquisitions or divestitures, salaries, bonus payments, use of retained earnings, etc.”
A small-time investor who always rattles senior management during shareholder meetings is a gadfly. Gadflies put forward proposals that the directors would rather avoid.
Video – Activist hedge fund investors
This New York Times video talks about how activist investors flocked to Wall Street and confronted some big corporate names.