When the Activist Investor Conference 2013 convenes next week in New York City, there will be no shortage of optimism among those who make their livings ousting boards, shaking up managements, and dismantling monolithic corporations.
That’s because 2012 is seen by many in the group as among the most successful years activists have ever enjoyed. Netflix, Proctor & Gamble, and Danone are only a few of the big names that faced significant activist challenges in 2012. There is little doubt that even more will be added to the list in 2013.
While the number of 13D filings (mandatory disclosures of an activist stake at or larger than five percent) were down in 2012, the dollars involved tell a very different story. As reported last month by The Financial Times, more than $57 billion were being devoted to activist agendas by the end of Q3 2012. That compares to $51 billion at the beginning of 2012 and just $32 billion at the end of 2008. Moreover, it’s important to note that several activist funds garnered investor returns of more than 20 percent last year.
These figures portend another uptick in 2013 for the simple reason that activists need to find something to do with all that cash. With more resources comes an enhanced ability to acquire stakes in, and demand changes from, companies that are seen as attractive targets. Daniel Kerstein, the head of the strategic finance group at Barclays may have put it best when he told the Financial Times that “Success begets success.” Henry Gosebruch, the Managing Director of JPMorgan’s M&A team added that “More money means a need to find more targets, and larger ones.”
As activists begin to cast a wider net than ever before, potential targets need to emphasize two strategic imperatives to prevent coming under the crosshairs. First is the need to communicate value and vision to the marketplace. Even if earnings are off and forecasts are pessimistic, companies can fend off the likes of Ackman, Loeb, and Icahn if shareholders know there is a solid plan in place and that management can effectively execute it.
And second, potential targets must identify ways to strengthen relationships with shareholders before activists seek to weaken them. When shareholders feel empowered and know that their insights are truly valued, they are more conditioned to side with boards and management when a hostile acquirer comes knocking.
With the 2013 proxy season just around the corner, companies need to take steps now to thwart activists armed with larger stockpiles of cash than ever before. For by the time a 13D is filed or a proxy challenge is issued, it is already too late to mount an effective defense.
Kathleen Wailes is a Senior Vice President at LEVICK and Chair of the firm’s Financial Communications Practice. She is also a contributing author to LEVICK Daily.