IN-DEPTH: Activist crowding is on the rise
Activists launched an elevated number of campaigns while other investors were already agitating over the last two years. Such crowding in specific stocks is likely due to a resurgence of activism since the pandemic, combined with governance and operational reforms undertaken by companies with proactive boards and advisors.
According to Diligent Market Intelligence (DMI), 156 campaigns were launched globally last year while other campaigns were ongoing. That was just one less than the rate recorded in 2022, and significantly more than the range from 133 to 148 brought forward between 2019 and 2021.
Such cases rose 50% in Asia last year and 26% in Europe (reverting to just below the average for the three years previously).
But North America is where the bulk of multiactivist campaigns take place. After ranging from 73 to 88 cases per year from 2019 to 2021, they shot up to 101 in 2022 and 98 in 2023.
Rise to prominence
“It is not a new trend that companies with significant vulnerabilities will draw investment from multiple activists as activists may have similar investment criteria and similar value creation theses,” Pete Michelsen, head of activism and shareholder advisory at investment bank Qatalyst told DMI. “However, there have been perhaps more mega-cap situations that have drawn attention to this trend recently.”
Indeed, many of the hottest proxy fights around seem to attract multiple activists, with recent examples surfacing at ExxonMobil, Salesforce and Disney. The number of cases involving multiple activists at large-cap companies more than doubled from 24 in 2019 to 59 in 2023, according to DMI data.
Another wrinkle drawing attention to the trend concerns cases of extreme crowding, with nine campaigns launched in 2023 and 13 in 2022 targeting companies that already had five or more ongoing campaigns. This compares to just one such example in the three years prior.
Already this year, Canadian clothing manufacturer Gildan Activewear has drawn anywhere from five to nine shareholders vocalizing their displeasure with the surprise dismissal of CEO Glenn Chamandy, with some taking a more active stance and one mounting a proxy fight.
Divide and conquer
Most cases of multiple activists targeting the same company make management’s life harder, according to experts that defend companies, as well as those that advise activists. But not all cases are so straightforward.
“When you have more than one activist campaigning against the same company and saying the same thing, that tends to be a red flag that there is a real issue at the company,” said Pat McHugh, senior managing director for Okapi Partners, a proxy solicitor that works on both sides of activist campaigns. When you’ve got two activists in the same stock with a divergent view, things start to get more complicated for all sides.”
Complicating events include activists striking deals to support management in return for board seats, preferential investment opportunities, and even potential spoiler campaigns – taking advantage of the new universal proxy card rules to draw support away from the activist that first indicated a willingness to seek board representation.
In situations where activists are not perfectly aligned, boards can take the initiative by proposing their own governance changes, including new directors, in the hopes of reaching mainstream shareholders over the clamor, McHugh told DMI.
Or they can seek to settle the fight with one activist.
“An activist that’s perceived to be more constructive can act as a counterweight to a more aggressive activist,” says Michelsen. “If a board decides that it has alignment with one or more of the funds and a settlement makes sense, the question is, which fund will be more constructive and, is the addition of a representative from that fund sufficient to prevent the other activists to mount a campaign. Does it provide a resolution? Will shareholders view it as not enough?”
McHugh echoed those sentiments, adding two practical considerations.
“If they don’t have the same solution, is there one that’s more achievable than the other? Which activist has the most leverage – owns the most shares or can control the most shares.”
