Compromising with activist investors boosts share price

The 29 US firms that have reached an agreement with activist shareholders since 2010 have seen an average annualized share price increase of 60 percent, outperforming the S&P by 42 percentage points over the same period, according to research from Activist Insight. 

This outstrips the gains seen in stocks where activists were successful in their demands or defeated by the board – showing how compromise can pay.

Activist Insight cites the high-profile case of Office Depot, where Starboard Value was seeking board representation. This was offered before the proxy contest had run its course. ‘Shareholders in the company would have seen the value of their investments rise by 67 percent from the day the activist filed its first 13D,’ say the researchers.

Where no compromise could be reached, successful activism produced an average annualized share price increase of 27 percent, while partial success brought gains of 34 percent.

By comparison, firms that defeated activist investors saw an annualized average share price gain of 15 percent, and when an activist withdrew its demands – ‘apparently more often in despair than relief’ – shares grew by an annualized average of just 7 percent, ‘10 percentage points shy of the comparable S&P average,’ notes Activist Insight.

‘The reality is that both activist and board usually have something to say to each other,’ explains Activist Insight’s Josh Black. ‘Compromise can lead to that blend of insider insight and the strategic thinking offered by independent shareholders that is critical for success. 

‘Unfortunately, it often needs a long proxy fight for board and activist to see eye to eye. When activists withdraw their board nominations, it usually suggests they’ve lost all hope of creating value.’

Of 471 dissident actions over the last three years, rebel shareholders were successful 208 times and ‘partially successful’ 41 times. Only 123 were unsuccessful – or saw the activist withdraw its demands – while a further 70 campaigns are ongoing, according to Activist Insight.