Old school activism

Whilst most investor activism these days seems to focus on ESG issues, recent developments remind us that until fairly recently ‘shareholder activism’ was a largely financially motivated activity.
Paul Singer, CEO of hedge fund Elliott Management, is known as the ‘the world’s most feared investor’ and judging by his latest investment it seems he is in no rush to lose this reputation. This ‘activist’ investor has reportedly accumulated a multi-million-pound position in GlaxoSmithKline (GSK) and plans to use its influence to shape the pharmaceutical company’s planned restructure.
Under the watch of CEO Dame Emma Walmsley, GSK is expected to split its consumer arm – which produces brand leaders such as Aqua Fresh and Ribena – from its pharmaceutical division which has struggled during lockdown. GSK’s share price rose by 4.6% as news reached the City.
While the hedge fund manager is yet to confirm its plans for the drug manufacturer, Elliott Management is likely to shape just how GSK manages the split by allegedly building on existing factions in the investor base. The intervention at GSK is very much in keeping with Mr Singer’s deal disrupting style. Elliot Management likes to take significant stakes in companies to agitate for restructuring. This was its tactic in 2018 when it used its 6% position in Whitbread to encourage the company’s sale of the Costa Coffee chain.
Singer also has history in forcing his will on the biopharma sector, having taken a position in Alexion before its acquisition by AstraZeneca a couple of years later. Elliott is also targeting the tech giants and has used its huge increase in assets under management to take stakes in Twitter, eBay and AT&T.
While activism from hedge funds such as Elliott Management demonstrates how effective engaged investors can be, there are wrinkles. Research from University of Pennsylvania shows that this kind of activism results in a 7.7% uptick in company value in the year following targeting, this rise is short lived. In the following years, the value of the companies targeted by activist hedge funds steadily drops, falling 4.9% four years after targeting and continuing downwards five years after targeting.
As we’ve written before, Elliott also has a history of using derivatives to agitate for change, rather than buying shares. There’s nothing improper about it, but it does mean that this makes them ‘derivative activists’. Let’s see what form their position in GSK takes.
Meanwhile, in what is becoming a rather undignified battle of words, funeral services business Dignity has rounded on its largest shareholder for revealing the company’s future business plans ahead of a crunch meeting. Phoenix Asset Management, which invests through its Phoenix UK fund, has been described as ‘deeply irresponsible’ and ‘self-serving’ by the Dignity board for making public plans to spin off its crematoria business.
The animosity between company and investor worsened after Phoenix laid bare its plans for Dignity in a letter to shareholders which it also used to drum up support for getting CIO Gary Channon appointed to the funeral home’s board. Its decision to make that letter public enraged Dignity’s decision makers, leading the company to claim Mr Channon is totally unsuitable to be appointed as ‘someone responsible for the executive function of the company’.
Dignity added: ‘In light of Phoenix’s most recent statements, the independent directors are more convinced than ever that it is in the best interests of shareholders to allow the current management team to finish its work without handing executive control to Phoenix.’
However, Phoenix says that if shareholders vote down its proposal and it has no representation on the board its investment in Dignity would ‘come to an end’. PIRC has advised clients to support the Board and vote against both resolutions at the forthcoming General Meeting.

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