Investor Relations

10 Steps CEOs can Take to Stop Activists Forcing them into M&A

Whether they like it or not, more CEOs are sizing up acquisition or divestment opportunities. And the rise of activist investors is largely to blame.

The world’s biggest mining company, BHP Billiton, is a current-high profile target. Others include American Insurance Group, Ericsson and Buffalo Wings.

Previous investigations have indicated that the influence of corporate rabble-rousers—such as Icahn Enterprises, Elliot Management and Starboard Value—has been growing, as shareholders lost patience with low returns and conservative management calls in the wake of the financial crisis.

Now, an analysis by research group Activist Insight shows just how much their ascendancy has has rippled through M&A markets.

“What we try to do is find a good quality business that is also under-managed,” Arnaud Ajdler, managing partner, Engine Capital

M&A-related activist demands at U.S. publicly-listed companies numbered 147 last year, down slightly from 151 in 2014 but well up on 115 in 2014 and 92 in 2013.

On average, 47% of demands since 2010 have been for targets to either sell themselves or merge with another company.

“What we try to do is find a good quality business that is also under-managed,” Arnaud Ajdler, managing partner at Engine Capital, said. “We then approach the board and say, ‘fix yourself in the public markets or sell yourself.’ Either is fine with us.”

A further 22% of demands were to oppose M&A deals favored by the board, 17% were to split the company and 14% marked an activist takeover bid.

Activist Insights has 10 tips for boards, fearful of being targeted:

1. Prepare by viewing proposed deals through shareholders’ eyes, looking for weaknesses in activists’ ideas.

2. Monitor trading activity, assessing how the deal will impact the goals of stock acquirers.

3. Take the temperature of your shareholders when deals are flagged.

4. Assess how the activist’s objective will resonate with other shareholders.

5. Consider a settlement or confidentiality agreement.

6. Emphasize the strength of your strategic review process to investors.

7. Explain the strategy and risk associated with alternative courses of action.

8. Prepare to engage with proxy advisers, ensuring your valuation assumptions are based on solid ground.

9. Respect the views of equity analysts.

10. Clearly “show and tell” how a deal is good or bad

No matter how well boards react, activism has well and truly taken root in America and increasingly around the world.

“Whatever the precise form, M&A activism looks likely to persist,” the report’s authors said. “It can be relatively cheap … and lucrative.”


Ross Kelly

Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

Share
Published by
Ross Kelly

Recent Posts

Rachel Barger, Cisco’s Senior Vice President of the Americas, Encourages Us to Always Keep an Open Door

In this edition of our Corporate Competitor Podcast, leadership speaker and storytelling expert Don Yaeger…

2 days ago

Boards May Need To Reevaluate Their Idea Of Acceptable Risk

Boards are being held to a higher standard regarding risk. A more thorough strategy may…

6 days ago

CEOs Can Become Afflicted With ‘Boreout’ Too

If you're experiencing burnout not because you're overworked, but because you're underinspired, it might be…

6 days ago

Why CIOs Should Report Directly To The CEO

When companies elevate the role, they reap significant benefits. Here are five critical ways it…

7 days ago

New-Era Koppers Keeps Staying Ahead Of The Game

CEO Ball has led early decoupling from China and diversification that ties into today’s infrastructure…

1 week ago

Cyberattacks: Not If, But When

You can’t be bulletproof, but you can be armed for battle.

1 week ago