Activist Investor

[Guest]

What is it 
An activist investor is an individual or company that invests money in another company it believes could be performing better. The activist then attempts to make a major change to the company through tactics like influencing shareholders and obtaining board seats. 

With any luck, it turns that investment into a healthy return by helping the company operate more efficiently.

Why it’s important
This is a strategy increasingly used by outspoken hedge funds and hedge fund managers. Nelson Peltz (of Trian Fund Management) is trying to make significant changes at Procter & Gamble. And Mick McGuire (of Marcato Capital) was successful at removing Buffalo Wild Wings CEO Sally Smith. 

Let’s see an example
Back to Loeb (Third Point) and Nestle. He saw that Nestle was down on its luck in 2016, suffocated by changing consumer preferences and a declining operating margin (15%). He then bought a 1.3% stake for $3.5 billion, and is slowly (but surely) influencing management. See above for details…

Let’s take it one step further
Sometimes these relationships can get sticky. If a company doesn’t agree with the changes, it might push back and attack a hedge fund with negative PR. At that point, the hedge fund may fight to win board seats (aka company voting rights) via a proxy voteamong shareholders. 

If you’re interested in diving any deeper, check out what happened with Buffalo Wild Wings and Marcato Capital!

[James Thomas Rook Jr.]

The reason Nestle is doing poorly is they changed Ovaltine, and changed it's packaging from Orange to pale blue.  I drank Ovaltine all my life .. then, couldn't find it .

A POX on Nestle !

 

[TrueTomHarley]

8 hours ago, Michael Krewson said:

An activist investor is an individual or company that invests money in another company it believes could be performing better

'Performing better' is the key phrase. It is performing better by whose standards? Long-term growth, short term raiding the piggy bank, or gouging? 

Martin Shkreli's company purchased purchased some pharmaceuticals (including Rochester's Bauch & Lomb) and raised the price of epipen six-fold. That helped it perform better. 

[Guest]

Very good point @TrueTomHarley

[TrueTomHarley]

Not to mention Amazon, which was roundly condemned for showing little profitability, plowing proceeds back into the business for the longest time for the sake of long-term growth. Many an activist investor would have thwarted this.

(these two posts might sound like I am being antagonistic. I am not. Just trying to contribute to the thread. I appreciate all you do here to bring up new topics.)