Explained: What is activist investing?
Activist Investors are advocates of change in organisations by taking stakes in listed companies.
Explained: What is activist investing?
Activist Investors are advocates of change in organisations by taking stakes in listed companies.
The process starts with a period of screening and analysing opportunities in the market. Activist Investor usually reviews several companies based on a range of parameters and carries out an in-depth analysis of the business and the opportunities for unlocking value.
Background
Started in the 1980s by the name of corporate raiders, a section of investors took a substantial stake in companies to influence their working, and unlock value for shareholders at large. Carl Icahn (one of the financial industry’s most notable activist shareholders, along with his work as a businessman, traditional investor, and philanthropist) earned himself the reputation as a “Corporate Raider” which stemmed from his hostile takeover of TWA airline in 1985.
At home, we saw a glimpse of shareholder activism in the Zee- Invesco saga.
Goal
The goal can be either financial gain (value unlocking for the shareholders) or a non-financial cause like ESG issues. The strategy undertaken by the Activist Investor to achieve their goal is to take a smaller stake in the listed companies generally less than 10 per cent stake in the equity capital of the company.
Tactics employed
From seeking board representation to engaging with the management by writing letters, proposing significant changes in AGM launching media campaigns and breaking up a large conglomerate to unlock value.
Typically, the target companies are small & medium listed corporates, targeting which the activist shareholder is most likely to win support for their action from other shareholders and the wider public.