By Michael Flaherty
NEW YORK (Reuters) – Activist investors are building bigger stakes in bigger companies & their influence is helping reshape the landscape of corporate USA.
Merger discussions between Dow Chemical & DuPont , two of the biggest & oldest names in the U.S. chemical industry, were prompted, at least in part, by activist investors.
They moreover played a role in Yahoo's announcement to ditch the spinoff of its $32 billion (21.1 billion pounds) stake in Chinese ecommerce giant Alibaba in favour of seeking the sale of its core Internet business.
The penchant for top-tier activists to target large U.S. companies is expected to gain traction, as the funds have growing pots of money to spend & need to put larger chunks of cash to work.
Investors have poured more money into activist hedge funds as successful campaigns to force changes at hundreds of U.S. companies have produced index-beating returns during the past few years.
Activists played a direct role in half of the 10 largest U.S. mergers & acquisitions announced this year, Thomson Reuters data show, in deals whose total combined value topped $260 billion (171.5 billion pounds). In the prior four years combined, activists played a role in only a handful of the top 10 M&A deals.
The move towards bigger targets comes as the overall number of U.S. activist campaigns is set to surge past 400, data from research firm Activist Insight data show, eclipsing last year's post financial-crisis record of 300 in a trend expected to continue into 2016.
"We're hearing from a lot of activists, even first-time activists, who are gearing up for proxy season next year," said Bruce Goldfarb, chief executive of proxy advisory firm Okapi Partners. "Even if the markets obtain rattled by an interest rate move next week, I think we'll see record activity in shareholder activism next year."
The U.S. Federal Reserve is expected to raise interest rates for the first time in nearly a decade next week.
'FUNDAMENTAL STRUCTURAL SHIFT'
Several other large activist announcements in the past few months came with a friendlier message than usual. But in all cases, the passive holding could quickly turn into an aggressive campaign for alter if the company is not boosting its share price swift enough.
Elliott Management bought a 6.5 percent stake last month in Alcoa Inc. , the $11 billion (7.25 billion pounds) aluminium maker; Trian Partners, a DuPont shareholder, bought a $2.5 billion (1.6 billion pounds) stake in conglomerate General Electric in October; ValueAct Capital scooped up a roughly $1 billion (0.6 billion pounds) piece of credit card company American Express .
Investors in Qualcomm Inc are waiting on whether the $73 billion (48.1 billion pounds) tech firm will split up its chip business or face a potential proxy fight from Jana Partners.
Macy's too could face a proxy fight from Starboard Value LP – the firm agitating at Yahoo – if the department store's turnaround plan fails to take hold.
Adding muscle to the activist buying spree is the support of mutual & index funds, which are increasingly putting aside their loyalty to CEOs & joining hands with activists who promise to drive a stock higher.
Last October, Starboard Value LP won a standoff with Darden Restaurants Inc, parent of the Olive Garden restaurant chain, convincing shareholders to replace the entire board of the Olive Garden parent – with BlackRock & State Street voting in support of the dissident slate.
"What weâ€™re seeing is a fundamental structural shift," said an activist adviser, referring to the amount of shares held by the largest asset managers. "Itâ€™s not just activists throwing punches."
(Reporting by Michael Flaherty; Editing by Peter Cooney)