how activist investors make their case
investor activists often announce their campaigns by filing a schedule 13d form with the u s securities and exchange commission sec which must be filed within 10 calendar days of acquiring 5 or more of a company s voting class shares qualified institutional investors and passive investors meaning those not trying to acquire or influence control of the company may instead file a simplified schedule 13g with less stringent disclosure requirements and thresholds 6 schedule 13d filers must disclose among other facts their reasons for acquiring the stake and any plans they may have for the company in terms of mergers and acquisitions asset disposals capitalization or dividends or other policies the initial 13d filing gives the activist investor a golden opportunity to publicize their case for change at the targeted company at the same time the filing curtails the activist s ability to alter their stake in and plans for the company out of the public eye any changes to the facts disclosed on a schedule 13d must be reported in an amended filing promptly under current sec rules 7activist investors may use amended schedule 13d filings to comment on a company s response to their proposals for example when netflix inc nflx adopted a poison pill after funds affiliated with carl icahn reported a stake of nearly 10 in the video streaming company the funds filed an amended disclosure calling the poison pill an example of poor corporate governance 8 activist investors may also write sharply worded letters to incumbent managers issue press releases arguing their case to other shareholders or privately lobby institutional investors to side with them 91011whichever tactics activist investors use must be persuasive since the only way to overcome opposition from entrenched company management short of a hostile takeover is to persuade a sufficient number of other shareholders to replace the board in a proxy fight or at least to be able to credibly threaten to do so the future of shareholder activismthere has been a claim that activism is dying lamented carl icahn in may 2022 contrasting the legendary investor s few holds barred approach seen in the past 12 some have feared the changes proposed to the schedule 13d disclosure requirements in 2022 constitute a pressing threat with elliott investment management stating publicly that the proposed rules will virtually shut down activism 13in february 2022 the sec had proposed shortening the initial schedule 13 filing deadline from 10 calendar days to 5 with amendments due within a day of a material change rather than promptly as currently the proposal if passed would effectively force 13d filers to specify holdings of derivatives such as options that confer an economic interest in the company without the shareholder rights associated with an outright stock position perhaps more controversially the proposed rules would no longer require investors to agree to act in concert and be designated a single group by the sec for schedule 13d reporting purposes 1415 rules have also been proposed to make it harder for activist shareholders to squash a company s environmental or other pro esg initiatives 16sec chair gary gensler argued the stepped up requirements proposed would address an information asymmetry between activist investors and other shareholders 14 critics countered the proposed rules would make activism unprofitable by making it more difficult and costly for activist investors to accumulate significant stakes while inhibiting communication among shareholders 17despite these proposed rule changes shareholder activism does not seem to be slowing down at least not yet for example activist investor nelson peltz reportedly made a profit of more than 150 million by acquiring shares of disney dis in november 2022 in a move that prompted a proxy fight against the returning ceo bob iger however this brief fight was called off after iger announced a restructuring plan that is expected to save the media giant 5 5 billion in costs and cut 7 000 employees peltz has expressed satisfaction with the company s direction and decision to make changes praising iger and his management team 18 in early 2023 valueact capital management a san francisco based activist hedge fund took a stake in streaming media company spotify technology sa spot with the goal of cutting costs and streamlining management 19 valueact has also disclosed a major position and board seat in salesforce crm which now has no less than five large activist investor shareholders on board with long positions resulting in early 2023 cost cutting measures that include layoffs of 10 of the company s employees 20 in all three of the these examples markets have reacted positively to the inclusion of activist shareholders seeing their share prices afterwards outperform 