Does Activist Investing Work? These Success Stories Say Yes
Activist investors take stakes in companies to boost shareholder value. While not always successful, these five examples show activist investing can work.
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Ask 10 investment professionals to define "activist investing," and you'll likely get 10 different answers.
As one example, Olstein Capital Management, a value-oriented investment firm based in Purchase, New York, defines activist investing as "a unique form of value investing targeting companies that have significantly underperformed their peers or the overall market for a considerable period of time."
But for the most part, the main goal of activist investors remains the same: To boost shareholder value. And there are many ways that activist investing can impact a company or stock price.
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"Activist investors make substantial minority investments in the common stocks of such companies with the stated intent of influencing company management to take specific steps to increase shareholder value," writes Olstein Capital Management. The two primary ways, the investment firm says, are through corporate governance and using excess cash to increase dividends or stock buybacks.
While not all activist investing campaigns have been successful, the following five examples are proof that it does work.
Frontier Communications/Jana Partners
New York City-based activist investor Jana Partners announced on October 17, 2023, that it had built a position in Frontier Communications (FYBR), one of America's largest pure-play fiber providers.
Speaking at the 13D Monitor Active-Passive Investor Summit, Jana's managing partner Scott Ostfeld said that the company, which Jana felt was undervalued, should put itself up for sale to a larger telecom company or private equity firm.
In December 2023, Jana sent a letter to the company requesting that it carry out "a comprehensive review of strategic alternatives to maximize value for shareholders."
Frontier formally announced a strategic review – though the company also said it is ongoing and not a new review – on February 5, 2024. The communication services stock is up nearly 50% since Jana went public with its activism.
VF Corp/Engaged Capital
VF Corp (VFC) is a Colorado-based apparel conglomerate whose best-known brands include The North Face, Vans and Timberland. As recently as January 2020, its shares traded over $100.
However, the stock soon began sliding amid declining earnings and revenue. And to boost cash, VFC slashed its quarterly dividend in February 2023. As a result, VF Corp was booted from the Dividend Aristocrats, a group of the best dividend stocks in the S&P 500 that have raised their payouts for at least the past 25 years.
In October 2023, California-based activist investor Engaged Capital announced that it had taken a stake in the beleaguered business. It suggested that VFC cut $300 million in annual costs and sell off non-core brands.
On February 13, 2024, VF Corp announced the appointment of Caroline Brown to its board of directors. Engaged Capital, which owns 1.3% of the company as of December 31, 2023, approved her appointment. The activist investor also recommended that a second independent director be appointed to the company.
Engaged Capital's board overhaul at VF Corp is part of its plan to help CEO Bracken Darrell revive the company's fortunes. Shareholders should ultimately benefit from this.
News Corp/Starboard Value
In September 2023, Rupert Murdoch stepped down as chair of News Corp (NWS, NWSA).
Less than a month later, Starboard Value CEO Jeff Smith spoke at the 13D Monitor Active-Passive Investor Summit, laying out his ideas for adding value for its shareholders. Starboard owns 1.70 million Class A and 8.73 million Class B shares.
Smith said he believes a tax-free spinoff of News Corp's digital real estate assets would generate $7 billion in value. It also wants the company to eliminate its dual-class share structure, which allows the Murdoch family to retain control.
While no initiatives have yet to be disclosed due to Starboard taking a stake, NWS stock is up more than 20% since the activist investor's initial announcement. NWSA shares are 22% higher.
Goodyear/Elliott Investment Management
Perhaps one of the most successful activist campaigns in recent memory is Elliott Investment Management's push for changes at Goodyear Tire & Rubber (GT).
On May 11, 2023, the activist investor sent a letter and presentation to Goodyear's board outlining its ideas for delivering future shareholder value. Elliott argued that the company's extremely flawed business strategy, combined with the erosion of its margins, has led to chronic underperformance of its share price, down 21% over the past five years. By comparison, the S&P 500 is up nearly 85% in that same time frame.
Elliott's pressure resulted in CEO Richard Kramer announcing he will retire from the top spot in 2024. In January, the company appointed Mark Stewart, former Stellantis (STLA) chief operating officer of North America, as its new CEO. In addition, Goodyear appointed three new directors as part of its cooperation agreement with Elliott.
While a work in progress, Goodyear's shares are trending higher.
Advance Auto Parts/Legion Partners Asset Management
Legion Partners Asset Management owns 1.3% of Advance Auto Parts (AAP), making the auto parts retailer its second-largest holding.
In December 2023, Legion co-founder and managing director Chris Kiper revealed the hedge fund's position in the company, admitting that it had already had discussions with the company.
Legion pushed for Advance Auto Parts to sell WorldPac, its wholesale distributor of original equipment automotive parts, which could generate as much as $3 billion in proceeds. In addition, it recommended that the company increase its employee pay to be more competitive with its peers.
In March, activist investors Third Point and Saddle Point Management reached a cooperation agreement with the company, resulting in three independent directors being added to its board. The activists might not have invested in Advance without Legion's involvement.
AAP shares are up more than 30% in the past six months.
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