Sony Corporation (ADR) (SNE), Canadian Pacific Railway Limited (USA) (CP): Do Investors Benefit from Activist Shareholders?

Third Point’s Dan Loeb is known largely for his shareholder activism. On Tuesday, his fund began a campaign to get Japanese giant Sony Corporation (ADR) (NYSE:SNE) to consider making some changes to its business.

As investors mull the prospect of following Loeb into the trade, it’s worth asking: do investors benefit from shareholder activism? In general, the answer is yes, though there have been some notable exceptions.

Studies support hedge fund activism

A recent study titled, “The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Product Market Competition” found that activist investors tend to increase the productivity of the firms they target.

Specifically, the study’s authors concluded that:

“The overall evidence suggests a real long-term effect of hedge fund intervention on target firms’ fundamentals.”

Bill Ackman’s battle with Canadian Pacific Railway Limited (USA) (NYSE:CP)

Like Third Point, Pershing Square is also known for its activist investing. One of its most notable success stories is a relatively recent event — the firm’s investment in Canadian Pacific Railway Limited (USA) (NYSE:CP).

In February 2012, Pershing Square began pushing for a management change at Canadian Pacific Railway Limited (USA) (NYSE:CP). In a lengthy presentation, the firm argued that the railroad had been mismanaged, and was badly in need of new leadership.

After a proxy battle that lasted several months, Pershing Square won out, installing its candidate — Hunter Harrison — as the firm’s new CEO. Since then, Canadian Pacific Railway Limited (USA) (NYSE:CP) has been a great investment, rallying nearly 90% since Harrison took the helm.

As of its last 13F filing, Pershing Square continues to hold a significant amount of Canadian Pacific Railway Limited (USA) (NYSE:CP) stock — roughly 26% of Pershing’s portfolio.

Despite the tremendous rally, analysts at Raymond James still like the stock, upgrading it to Outperform late last month. In a note, Raymond James wrote that the company’s new management team was conducting a sweeping transformation of the company’s business.

Loeb’s fight over Yahoo! Inc. (NASDAQ:YHOO)

If investors are considering following Loeb into Sony, they are probably hoping for a repeat performance of his
Yahoo! Inc. (NASDAQ:YHOO) activism.

Loeb went activist in Yahoo! in September of 2011. Ultimately, it took him several months, but Loeb was able to capture three board seats and install Marissa Mayer as Yahoo’s new CEO.

Since pitching his case for Yahoo!, shares of the Internet giant are up an impressive 84%. With Loeb sitting on such an incredible gain, and looking to focus his efforts on Sony, it will be interesting to see if he dials back his ownership of Yahoo.