When a lone prominent activist takes aim at a company, investors should pay attention. When two or more of them team up to take on the same company? Expect a lot of fireworks.
While activist investors have their detractors, who often accuse them of putting short-term shareholder returns above the long-term welfare of a company and its employees, it’s undeniable that they bring a fresh perspective and a new level of accountability to companies. A recent study by the Warwick Business School showed that CEO pay falls by an average of $350,000 in the year after activists take a position in a company’s stock.
Nonetheless, more and more voices in recent years, including the CEO of $5 trillion asset management firm Vanguard, have been calling for companies to push back against activist campaigns. That appeared to be the case in 2017, as fewer companies gave in to activists’ demands and activists suffered defeats in three of the biggest proxy contests of the year, which included Procter & Gamble Corporation (NYSE:PG) spending as much as $100 million to defeat Nelson Peltz.
In light of that, activists appear to be trying a new tactic with greater frequency: joint activist campaigns. Below, we’ll look at three such campaigns that are currently taking place, which involve United Technologies Corporation (NYSE:UTX), Energen Corporation (NYSE:EGN), and Newell Brands Inc. (NYSE:NWL).
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United Technologies Corporation (NYSE:UTX)
Bill Ackman of Pershing Square and Dan Loeb of Third Point have both taken aim at United Technologies Corporation (NYSE:UTX), with the joint goal of breaking up the company. Third Point opened a 7.1 million-share stake in the company during the first-quarter and discussed its recent underperformance in the fund’s first-quarter investor letter. United Technologies trails its industrial peers by nearly 45% over the past five years despite market-leading assets within each of its business segments. Third Point stated that the company should be split into three separate businesses.
Ackman also opened a large United Technologies Corporation (NYSE:UTX) stake in the first-quarter (1.94 million shares) and recently revealed that he wants the same thing for the company as Loeb does: for it to be split into three businesses. In his own first-quarter letter, Ackman praised the company’s business portfolio, calling it one of the most advantaged in the multi-industrial sector, while lamenting the company’s undervalued stock, which trades at just 16x Pershing Square’s 2018 earnings estimates for the company, well below the fund’s estimate of the company’s underlying value.
For its part, United Technologies Corporation (NYSE:UTX) is conducting a portfolio review that it expects to be completed this year, and has stated that it will consider the option of a split. However, Loeb believes that the company is showing less interest in a split than might be expected. Time will tell if an activist double-team changes the company’s mind.
On the next page we’ll look at two other stocks that prominent activist investors are ganging up on.