Business, Legal & Accounting Glossary
An activist investor is an individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change within the company.
Activist Shareholders are investors who acquire an equity stake in a publicly traded company (PLC) as a means to attempt to influence company practice or policies.
Shareholders may be ethically motivated, perhaps desiring improvements in the environment or social impacts of said business, or they may be more fiscally motivated – and interested mainly in influencing the businesses strategy or management for profit related aims.
An activist shareholder uses an equity stake in a corporation to put public pressure on its management. The goals of activist shareholders range from financial (an increase of shareholder value through changes in corporate policy, financing structure, cost-cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.). The attraction of shareholder activism lies in its comparative cheapness; a fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking.
Shareholder activism has gained popularity as management compensation at publicly traded companies and the rising cash balances on corporate balance sheets have risen.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.
Some of the recent activist investment funds include: Icahn Management LP, Santa Monica Partners Opportunity Fund LP and Relational Investors, LLC.
Due to the increasing popularity of the internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc shareholders created an online petition to protest the MCI Inc/Verizon merger.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, litigation, even in the right circumstances more-or-less amicable negotiations with management.
For example, in September 2003, hedge fund manager Lawrence J. Goldstein created a new fund specifically for the purpose of using such activism to increase the value of targeted corporations’ equity. The resulting entity is known as the Santa Monica Partners Opportunity Fund LP,
A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign.
Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management.
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This glossary post was last updated: 18th April, 2020 | 2 Views.