While the issue of the benefit or harm that activist investors cause remain debatable, Dan Loeb has added two more successive victories on his Resume, as both Dow Chemical Co (NYSE:DOW) and Sothebys (NYSE:BID) agreed to his demands.
Bloomberg’s Erik Schatzker reported on the culmination of a six month proxy fight between Mr. Loeb and Sotheby’s which mostly revolved around the inadequacies of the company’s CEO, William Ruprecht, who has now agreed to step down. Moreover, Dow Chemical Co (NYSE:DOW), which the activist investor had criticized for missing earnings target agreed to appoint 4 new members to its board. Sothebys (NYSE:BID) has also appointed Loeb and two other new members to its board. Let the Loeb overhaul begin!
However, is this sort of activity really healthy for the two companies and their shareholders? Do activist investors like Loeb have an operational experience better than the CEOs who are managing these companies? Do they have an investment horizon that is long enough to guarantee that their opinions are not short sighted?
Well, both Dow Chemical Co (NYSE:DOW) and Sothebys (NYSE:BID) are soon about to find out the answers to these questions, at least in their respective cases. The issue of the value that activist investors add to companies was also discussed on Bloomberg among Ken Squire, founder and president of 13D Monitor, and Bloomberg’s Stephanie Ruhle and Erik Schatzker.
“All an activist can do is give a choice, so they can give their agenda and the company has their agenda, and shareholders and boards will vote on that, and as far as their investment horizon, you know the average domestic equity mutual fund turns over once a year, so they have a one year holding period, you know, so activists have 1 to 3 year holding period […],” said Squire.
However, even bad ideas and choices can gain considerable momentum, while the more rational and logical ones might get sidelined. After all, the greatest motivation for both the board and the shareholders is the profit. This might lead them to overlook shortfalls in the more short term plans. Dow Chemical Co (NYSE:DOW) and Sothebys (NYSE:BID) have interesting times ahead of them.
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