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Activism 3.0: Kinder, Gentler Campaigns?

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April 25, 2018

There is a new collaborative tone to activist campaigns these days

Game planAfter a long and contentious relationship, companies and activists are entering détente when it comes to dealing with one another. Whereas in the old days activists would make outlandish (and self-serving) demands, it’s become more collaboration.

This is one takeaway from a recent meeting of NeuGroup’s Assistant Treasurers’ Group of Thirty (AT30). One banker at the meeting who leads his firm’s activist defense team said companies and activists are working together more than ever. Activists have modulated their campaigns, offering advice that companies can more easily agree to. Also, many companies have activist playbooks at the ready or are now just managing their cash better. Further, banks now have activist-defense advisories that help companies deal with an outspoken shareholder. All of this has mellowed the exchange between company and activist.

“They are quieter campaigns than they used to be a few years ago,” this banker said. “Now activists are approaching corporates and saying, ‘How can we work collaboratively?’” And when they do tell a company they’re doing things the wrong way, now more often than not it’s a gentler approach with a beneficial solution on offer. “It’s become, ‘here’s what you’re doing wrong and here’s one way to fix it,’” the banker added. Some companies still chafe against shareholders that have a miniscule stake telling them how to run their company, but it’s less common.

And while balance sheet activism is still big, other forms of activism are rising to the fore. In 2017, activists seeking a “sale or merger” outpaced “review strategic alternatives” and “break up/divestiture,” according to FactSet. “Balance sheet activism is down because campaigns are getting better” and more studied, the banker at the AT30 meeting said. And in many cases activism targeting operations, the banker added, or issues concerning social causes like diversity and climate.

This was also brought up at a NeuGroup Treasurers’ Group of Mega-Caps, where host BlackRock’s Chairman and CEO, Larry Fink, mentioned to members his recent letter to CEOs calling on them to deliver both financial performance and a positive contribution to society. He also stressed the additional importance for companies to make their purpose and strategy transparent to shareholders and employees.

Overall, since a banner year in 2015 with 179 campaigns, US activism has been slowing somewhat, down to 152 in 2016 and 141 in 2017, according to FactSet. The current pace in Q1 2018 is ahead of Q1 last year, and with repatriation, it could start to pick up again, which means it’s not a matter of if a company will become a target but when. This could also reignite the tension between the two camps, as more cash comes into play. 

And when will a company become an activist target? The banker at the AT30 said there “is no litmus test for when.” Activism is evolving, and while there is more nuance and negotiation, it still requires a proactive effort. Therefore, “what you need to do is communicate: say what you’re going to do and then do what you say you were going to do.”

“Activism 1.0 was, ‘Lever up and sell the company,’” the banker said. “Activism 2.0 was, ‘Give the money back,’ and now activism 3.0 is more about engagement, more self-help.” He also suggested doing mock activist attacks to see where the issues are so they can be addressed before an attack. “Trying to make things right after an activist attack is less effective than fixing things before they campaign.”

 In the final analysis, companies need to ask themselves: Are we being good stewards of capital? “Good performance and good messaging is the best defense,” the banker said.

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