Adam Kommel is a Shareholder Activism Data Specialist, Arun Verma is the Head of Quant Research Solutions, and Ken Kohn is a Product Manager at Bloomberg LP. This post is based on a Bloomberg publication. 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).
This post investigates the results of the Bloomberg Activism Screening Model. The model’s goal is to answer a basic question: Which companies in a list of equities may become targets for activist investors? This model has been requested frequently by Bloomberg clients. Advisers to activists and targets as well as internal experts recommended the screening criteria.
The model selected 17 factors from a pool of 60 candidate factors. These factors fall into 5 categories: Returns (5), Valuation (4), Ownership (3), Governance (3) and Operations (2). Some factors are based on market data, including returns over 6 months, 1, 2, 3 and 5 years. Some are derived, including price/earnings ratio relative to peers and margins relative to peers. Others are compiled by Bloomberg, including CEO tenure and whether the company has dual-class unequal voting rights. Each criterion, scaled from 0 to 100, is applied to all the companies in a list (for this investigation, the Russell 3000 Index was used). Companies are ranked by the outcomes, with those higher on the list considered more likely to draw the interest of activists.
