Can activist investors become a force for good?

Apple and BlackBerry are just two of the brands whose investors have benefited from those once regarded as corporate raiders, says Mark Mcsherry

Activist investors have sometimes been viewed as carpetbaggers, opportunists and corporate raiders. They’d buy up stock in companies and force them, in one way or another, to pay them and other shareholders to go away.

Today, activists are just as likely to be viewed as champions of shareholder rights, shaking cash-rich and complacent companies out of their inertia. Their activities are seen as legitimate and welcomed by institutional investors that are too lazy to do the hard work themselves.

They force companies to buy back their shares at a good price or give shareholders the profits and dividends that are rightfully theirs.

Apple, Microsoft, BlackBerry, PepsiCo, Transocean, Sotheby’s, Yahoo, UBS, Sony and McGraw-Hill have all been targeted by activist shareholders in recent years.

Mary Jo White, chair of the US Securities and Exchange Commission, said recently: “The nature of the practices and objectives associated with shareholder engagement is changing. More and more, investors have become comfortable with being called an ‘activist’, in part because of the support they have received for their goals and, in some cases, even the tactics they use.”

Henderson Global Investors said recently that the world’s listed companies paid out more than $1 trillion in dividends in 2013. This bonanza was no doubt encouraged at least in part by the activities of the activists.

Here are four of the most prominent activist investors and the battles they have fought.

1. CARL ICAHN

Made his name in the 1990s agitating for change at the food and tobacco company RJR Nabisco.

More recently, Mr Icahn piled pressure on Apple to buy back large amounts of stock and pushed drilling contractor Transocean to pay a dividend.

Mr Icahn is currently embroiled in a fight to force change at eBay, arguing that it could create more value by spinning off its PayPal business. eBay disagrees, arguing: “Payment is part of commerce and, as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders.”

It could be a long fight.

2. DANIEL LOEB

Mr Loeb and his firm Third Point are currently agitating for big changes at auction house Sotheby’s. Mr Loeb is trying to secure three board seats, even after Sotheby’s promised to return about $450m (£270m) to shareholders.

Mr Loeb, an art collector himself, has compared Sotheby’s to “an old master painting in desperate need of restoration”.

The attack on Sotheby’s follows his success at Yahoo when he and two others joined the board in 2012, helped choose Marissa Mayer as the new chief executive and earned a reported $1bn for Third Point.

Third Point also recently bought stakes in BlackBerry and Dow Chemical, where it has urged the company to spin off its petrochemical business.

3. BILL ACKMAN

Mr Ackman’s Pershing Square Capital scored a massive victory in January when his big investment in Fortune Brands paid off handsomely as Japanese whisky producer Suntory said it would pay $13.6bn cash for Beam, the liquor company spun out of Fortune in 2011.

The deal was worth at least hundreds of millions of dollars to Pershing Square.

Another big win for the firm came when it helped to force boardroom changes at Canadian Pacific Railway in 2011 – a move that helped lift the share price of the railway company more than 100 per cent.

But, like other activists, Mr Ackman has found it is not always easy to make companies change their ways. His attempts to force change on the US retailer JC Penney was unsuccessful and expensive – by the time he gave up and sold his stake, he had lost hundreds of millions of dollars, according to Reuters.

4. NELSON PELTZ

The colourful investor has always denied claims made in a 1988 book that he arranged for four women to play topless tennis while he watched, and prefers to make the headlines with his business dealings.

Mr Peltz, who was instrumental in helping to carve up food companies such as Cadbury and Kraft, is currently targeting PepsiCo with a proposal to split its snacks division from its beverage business.

In a letter to the Pepsi board, Mr Peltz said that more entrepreneurial companies would be created via a spin-off and that the move would boost sales in snacks, while the drinks business would generate cash that could be returned to shareholders.

Mr Peltz’s investment firm, Trian Fund Management, owns about $1.2bn worth of Pepsi stock.

Mr Peltz also has stakes in The Wendy’s Co of fast-food fame, fund manager Legg Mason and manufacturer Ingersoll-Rand – and serves on those companies’ boards.