With the S&P 500 and Nasdaq Composite Index falling around 12 percent on March 16, activist investors are seeing the opportunity for value in the market.
Several notable activists – including Carl Icahn, Starboard Value and Saba Capital Management – have made public appearances recently citing the value they see in the market. Speaking to CNBC last week, Icahn said: ‘It’s reached a point that there are some companies that are just sort of given away.’
Saba Capital Management told its clients on Friday 13 that its hedge fund business was up 33 percent in March, citing coronavirus volatility, according to Reuters.
‘There will be some tremendous buying opportunities right now,’ a leading adviser to activist investors told IR Magazine this week.
Jeffrey Smith, CEO and chief investment officer of Starboard Value, agrees. Speaking to Bloomberg earlier this month, he said: ‘I don’t want to seem opportunistic because the first thing we care about is the health and well-being of employees and people around the country, but yes the volatility in the marketplace is a good opportunity for us.’
There’s a sense that the coming months will provide a useful window into the effectiveness of companies’ management teams and boards. When assessing the effectiveness of a CEO, Smith said: ‘Experience matters, capability matters and managing through a crisis is hard.’
A push for settlements this proxy season
Many companies are in the final stages of preparation for proxy season – although many more may be considering pushing back the date of their meeting after the SEC issued new guidance to public companies on postponing their annual meetings or holding them virtually in states where it’s legal to do so.
Contested situations that make it all the way to the proxy meeting are expensive and time-consuming for all involved. Several interviewees for this article suggested that the stock market volatility could lead to more resolutions than usual, as investors look to understand valuations and issuers look to contain the fallout of the volatility.
‘We are just at the beginning of proxy season for many companies and I think a number of activists are in an intense period of monitoring the markets, the particulars of the target and its industry, and considering the views of other investors ahead of the contest,’ says Bruce Goldfarb, chief executive officer of Okapi Partners.
‘All situations are different, but issuers should be in contact with their shareholders to assess whether a quick settlement is something they would support. Many companies are delaying their annual meetings or holding virtual annual meetings because of the crisis and this assessment will have an impact on how proxy contests play out and who turns out to vote.’
Activist investors won 210 board seats via settlement at 117 US companies last year, according to data from Activist Insight. By contrast, 21 board seats at 16 companies were won at contested proxy meetings.
‘If you have a reasonable activist across the table and you’re both focused on the fact that there’s unprecedented challenge for both businesses, you’d think you would want to spend your time on other things than fighting the activist,’ one adviser told IR Magazine. ‘Clearly if the stock is down 30 percent to 40 percent and people thought it was undervalued a month ago, you’d want to come to a solution now to find a settlement and drive value.’
