Lazard’s Review of Shareholder Activism—2018 3Q YTD

Jim Rossman is Managing Director and Head of Shareholder Advisory at Lazard. This post is based on a Lazard memorandum by Mr. Rossman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here), and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Key Observations on the Activist Environment through 3Q 2018

Record Level of Companies Targeted

  • Activists targeted 174 companies in the first three quarters of 2018, surpassing 169 companies targeted in all of 2017
  • 26% more campaigns initiated YTD over 2017 YTD, representing capital deployment of $53.8bn, in-line with 2017 YTD levels
    • Nonetheless, 3Q witnessed a decline in new campaign activity and capital deployment relative to the recordsetting 1Q and 2Q 2018
  • A record 130 activists were responsible for YTD campaigns, exceeding the level for all of 2017
  • Elliott accounted for ~10% of all activity, with 19 campaigns launched YTD

Board Seats Won on Track to Surpass 2016 Record

  • The 130 Board seats won in 2018 YTD represent a ~57% increase over 2017 YTD and a ~30% increase over the number won in all of 2017
    • Starboard, Elliott, and Icahn alone accounted for ~48% of all Board seats won
    • Board seats mostly granted via settlement, with only ~15% resulting from proxy fights
    • Only 25% of Board seats won YTD were filled by activist fund employees, the lowest level on record

Board Change and M&A are the Most Common Objectives

  • Board change and M&A initiatives were each requested in one third of all new campaigns YTD

Targets Becoming Increasingly Global

  • 42% of campaigns YTD targeted non-US companies, including 21% launched at European companies, 10% at Asian companies, 6% at Canadian companies, and 3% at Latin American companies
  • European activity is modestly down, with 40 campaigns YTD as compared to 42 in 2017 YTD
    • 38% decline in year-over-year capital deployed in Europe stems from lack of multiple $1bn+ stakes that characterized 2017 YTD

Increasing Engagement from Traditional Active Managers

  • Traditional long-only investors continue to refine their engagement strategies
    • A growing list of institutional managers have become increasingly vocal in advocating for strategic change themselves or encouraging management to engage with activists that are agitating for change

The complete publication, including Appendix, is available here.

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