Forget Proxy Votes: Activist Investors Harness Media Power to Affect Change
It’s fair to say that when it comes to activist investing Carl Icahn is a superstar – and he has a Twitter account with 270,000 followers. Currently he’s Tweeting about Xerox. Icahn disclosed Nov. 23 that he’d acquired a 7.1 percent stake in the printer/copier company and on Jan. 29 Xerox announced it would split into two separate companies, a decision made in no small part because of pressure from Icahn. No costly, protracted proxy battle was needed. Icahn will get board seats on one of the companies; such is the power of the activist superstar.
In the era of the 24-hour news cycle and social media, activist investors are affecting change by becoming experts in harnessing public opinion. Whether it be through “earned” media, such as interview segments on CNBC and Bloomberg, or via “owned” media – e.g., posts on Twitter and Facebook – the use of media is increasingly replacing the proxy vote. In 2009, about 14 percent of activist campaigns resulted in a proxy vote. That dropped to about about 3.6 percent in 2014, according to Sharkrepellant.com, which tracks activist activities.
…the use of media is increasingly replacing the proxy vote.
Activist investors take stakes in companies not because they like what they see, but because they perceive ways to eek out value for themselves – and other shareholders – in a relatively short time period. In aggregate, activists now control more than $200 billion in assets, up from about $12 billion in 2003. The success rate of activists as a group is mixed but high-stakes victories have given these investors superstar personas and reputations that has changed the rules of the activist game.
Icahn, for example, famously forced up the price for computer maker Dell to go private through the use of Tweets, media interviews, and open letters to shareholders. “Is it Michael Dell’s alter ego who keeps whining about the unfairness of an agreement that he himself asked the Dell Board to accept?” Icahn asked in a 2013 letter to shareholders. Because the campaign worked, activists gain credibility and garner more media and shareholder attention.
A company targeted by activists might expect to find the ensuing media campaign to be varied and pervasive with information disseminated to institutional and small investors alike. Activists may create PowerPoint presentations with graphics about everything from capital allocation to executive compensation and publish the information on Facebook or LinkedIn. They might gain interviews with prominent financial publications and create videos for YouTube and Vimeo criticizing management and the board. Take Eric Jackson whose YouTube videos critical of Yahoo rallied shareholders and eventually forced the resignation of former CEO Terry Semel.
Activists may create PowerPoint presentations with graphics about everything from capital allocation to executive compensation and publish the information on Facebook or LinkedIn.
And the depth of social media is only increasing with sites including Seeking Alpha and StockTwits available for investor discussion and specialized sites emerging like As You Sow, which highlights ethical investing.
Activists may create campaign websites loaded with presentations, white papers, videos, infographics, letters to management, and other information supporting their cause. Wintergreen Advisers has created a website called FixBigSoda.com, complete with a resource library, where Wintergreen lays out its case against Coca Cola and makes recommendations on how to boost shareholder value.
The power of media campaigns for activists is such that they can also reach their goals with a much smaller ownership stake than in years past. Historically, activists would accumulate a 5 percent ownership stake, consistent with Securities and Exchange Commission 13D disclosure rules, to engage in meaningful change. However, a recent study by JP Morgan showed that in 60 percent of the campaigns waged against companies with a market capitalization of $20 billion or more activists owned only 1 percent or less of the target company.
Activists are clearly updating their approach to affecting change and the media is becoming an increasingly powerful tool. It’s important to monitor these channels, gauge investor reaction and act accordingly. Next in our series we’ll look at another important tool: how options trading can identify if activists are accumulating shares in a given company, including yours.