After a sharp decrease in stock prices, activists who previously targeted small and midsized tech companies are now targeting bigger targets, such as Disney and Salesforce.
Tech companies, whose stocks took a battering in 2022, now face a kind of rebuke: Activist investors are focusing on them because they see an opportunity to buy in at a discount and push for changes that will increase their wealth.
Some of the biggest names in the sector are being targeted by a particularly vocal group of wealthy investors as they struggle with layoffs, watch their stock values plummet, and see their growth slow. The investors are getting ready to strike, take drastic measures to increase stock values, and then sell at a profit.
‘Not all activist investors are created equal’
“No one is immune. We will see more of this given the market dynamic,” said the chief executive of one publicly traded tech company that recently dealt with activist activity. “Activists are good at determining who is undervalued and how [that] can be fixed in discrete moves. It seems to be across the board. The larger the activist firm, the more they can invest in a target, so it correlates to larger companies.”
According to Nasdaq IR Intelligence’s Shareholder Activism: 2022 Year-in-Review whitepaper, which cites FactSet data, last year was a record-setter for U.S. shareholder activism, topping nearly 900 campaigns amid an uncertain macroeconomic landscape and geopolitical climate.
Large tech firms are appealing to investors because they are “incredibly good businesses that could possibly be more profitable,” according to the CEO, who requested anonymity in order to speak freely. Activists see an opportunity to increase margins and profits while profiting from their investments in those companies, he says.
Investor activism has increased as stocks have fallen. Stanford University’s David Larcker, a corporate-governance expert, refers to it as the “standard playbook” of corporate activism. He also added that: “When prices drop off, it is a natural place to look for value and change in strategy,” he said. “But it used to be smaller [or] medium targets. We are in a bit of a different world now, with bigger companies being looked at, and the ability to get more board seats.”
Salesforce Inc. CRM, whose co-CEO Bret Taylor recently stepped down following a 22% drop in the company’s shares over the last year, added three new board members amid a flurry of activist group actions last week based on the report. According to Robert Bartlett, a law professor at the University of California, Berkeley, one of these, the hedge fund ValueAct Capital, had a significant impact on Adobe Inc. ADBE and Microsoft Corp. MSFT’s shifts in strategy from a focus on legacy software to cloud-based platforms.
Salesforce is also under pressure from the hedge fund Elliott Investment Management, which is expected to nominate a slate of directors at the embattled company amid slowing growth and 1,900 layoffs. Elliott reportedly owns a multibillion-dollar stake in Salesforce and has also invested in Pinterest Inc. PINS, PayPal Holdings Inc. PYPL, AT&T Inc. T, and Twitter Inc. prior to its acquisition by Tesla Inc. TSLA CEO Elon Musk.
Elliott, with its pugnacious nature and demands, poses a more antagonistic challenge than ValueAct.
“Not all activist investors are created equal: Some, like ValueAct, are more reasonable than others,” Bartlett said.
Starboard Value CEO Jeff Smith revealed in October that the hedge fund had also taken an unspecified stake in Salesforce, claiming that the software company had not generated meaningful operating leverage relative to peers in recent years.
MarketWatch was unable to reach ValueAct, Elliott Management, or Starboard Value for comment.
Walt Disney Company
Based on the report, Walt Disney Company, whose stock DIS has fallen 23% in the last year, now faces a more hostile foe as it navigates cost-cutting and treacherous competition in streaming. Despite the jump towards streaming in Netflix Inc. NFLX and Apple Inc. AAPL, CEO Robert Iger has been reinstate as Disney after three years of passing the position to successor Bob Chapek.
Nelson Peltz, co-founder of Trian Fund Management, is seeking a seat on Disney’s board of directors because he believes the company’s “succession plan has failed, and a new voice is needed in the boardroom,” according to a Trian spokesperson. Peltz wishes to succeed Michael Froman, vice chair of Mastercard Inc. MA, on the Disney board.
However, Disney’s Board had replied this statement stating that the board believes Froman “a highly valued member of the Board with deep background in global trade and international business, who the Board believes is far better qualified than either Mr. Peltz or his son to help drive value for shareholders.”
Good or Bad?
“The rise of activist investor activity coincides with general dissatisfaction with the economic downturn, and some large corporations are blamed for alarming social trends,” Kate Romanovskaya, co-founder of app maker House of Pitch, told MarketWatch. “It’s difficult to say whether it’s a good or bad thing case by case — what motivates specific activists in their campaigns, and what are their true incentives?”
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