Activists Target Companies with Market Caps over $50 Billion

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton firm memorandum.

In a speech to the Council of Institutional Investors recently, Nelson Peltz, one of the most successful of the activist investors, said the recent changes in corporate governance would enable him to make investments in the heretofore “untouchables”—companies with market capitalizations over $50 billion. Mr. Peltz noted that the new governance rules give activists more tools with which to pressure companies, noting that larger companies provide bigger profit opportunities than smaller companies.

Activist investors with significant records of success will be able to use the new governance rules to convince institutional investors, like the members of the Council of Institutional Investors, to join them in pressuring companies to change their business strategies to those advocated by the activists, whether or not they are in the best interests of the long-term success of the companies and their long-term investors.

There has been a notable increase in hostile takeover and activist investor activity this year. If the present favorable market conditions for this activity continue, there will be a further increase. There is also little doubt that Mr. Peltz’s prediction that the targets will be among the largest companies is also correct.

All companies, even the very largest, should have up-to-date plans for dealing with activists and strategies to avoid inviting the notice of activists.

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  1. Andrew
    Posted Tuesday, April 19, 2011 at 11:24 am | Permalink

    With the new rules for proxy access and other shareholder initiatives, could sabotage strategies develop that allow competitors to invest in rivals and demand corporate activities that cause passive investors to pull out, thereby weakening the stock price and making the company ripe for takeover?

  2. Joaquin
    Posted Wednesday, April 20, 2011 at 4:41 am | Permalink

    I simply wonder why in the article it is accepted that activists will be “more able to convince …to pressure companies to follow their strategy suggestions against the best interests of the long-term success of the companies and their long-term investors.
    The conclusion is not really evident, isn`t it?
    And the oppossition short term – long terms either, isn`t it?

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