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Companies faced a record number of attacks from activist investors in 2023 as disgruntled shareholders tried to oust directors or force the sale of companies whose share prices had fallen.
According to a report from investment bank Lazard, there were 252 new campaigns worldwide, an increase of 7 percent year-on-year. Few companies were safe from scrutiny, as a wide range of activists targeted blue-chip companies such as Walt Disney, Salesforce and Starbucks.
Europe and Asia Pacific saw record activity, with the UK and Japan leading the way. 69 campaigns were launched in Europe, most of which had M&A-related claims, and 44 new campaigns in Asia Pacific, where local hedge funds were the most active participants.
“Activism today has a very regional dynamic,” said Rich Thomas, managing director of Lazard’s capital markets advisory group. “Global campaigns are at an all-time high because [Asia Pacific] and Europe had a breakthrough year.”
Activists typically buy stakes in companies and advocate for changes that they believe will help boost the stock price. In previous years, investors attacked companies and their leadership in public letters, but advisers said much of the negotiations between activists and targets now took place behind closed doors.
But a series of high-profile disputes have spilled over into the public eye, increasing pressure on management teams as they grapple with slowing economic growth and higher interest rates.
Trian Partners announced last year that it would seek two seats on Disney's board. In doing so, the company set the stage for one of the most contentious proxy battles in years, pitting its co-founder Nelson Peltz against returning CEO Bob Iger.
Carl Icahn, whose own public investment company was attacked by activist short seller Hindenburg Research, waged an aggressive campaign against Illumina over its acquisition of cancer test developer Grail. In December, the gene sequencing company announced it would be separating from Grail.
While activism has historically been dominated by hedge funds like Elliott Management and Third Point, the strategy is increasingly being implemented by other types of shareholders. According to Lazard, more than 40 percent of activists who launched campaigns last year were doing so for the first time, as the list of dissatisfied investors that companies have to deal with continues to grow.
Thomas said the number of first-time activists has increased significantly, particularly in Europe, after many previously held back during the cost of living crisis and rising energy prices.
“The hurdles have fallen and frustrated shareholders are now launching further campaigns,” he said. “We’re seeing this activist landscape diversify and expand.”
Starbucks is facing a challenge from a coalition of unions called the Strategic Organizing Center, which has launched a proxy contest to replace three of the company's directors with its own candidates because of “serious mismanagement of human capital.”
The proxy fight, if it takes place, is expected to be a test case of whether a larger shareholder can be won over through single-issue fights, and shows the threat companies face even from shareholders who hold smaller stakes.
Lazard said general proxy voting rules implemented in 2022, which guarantee all board candidates appear on the company's ballot, had little impact on the number of board seats won by activists.
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However, companies are now quicker to call a truce with activist investors to avoid proxy competitions. According to Lazard, last year only 37 percent of campaigns that ended in winning a board seat lasted more than 90 days, compared to 44 percent, and 34 percent were completed within a week.
Last year saw an upswing in several hedge funds pursuing the same goal. At one point, Salesforce had seven activists on its shareholder registry, including ValueAct, Elliott and Third Point, according to people familiar with the company.
“There's been this discussion about wolf packs attacking small companies, but you rarely see these campaigns at a large company because it's difficult to get enough shares and get through the process,” said Bruce Goldfarb, founder of proxy fundraising firm Okapi partners.
“There are now a number of activist hedge funds that need to take larger positions to deliver impact for their investors, so they end up achieving the same goals, often without collective action.”