In the first six months of 2024, activist investors launched campaigns at a record number of companies globally, as reported by data from Barclays. This increase in activity has sparked speculation among bankers, lawyers, and investors about potentially more costly battles between activist shareholders and management over leadership changes, spin-offs, and outright sales in the coming months. Notable examples include Elliott Investment Management’s targeting of Southwest Airlines, Starboard Value taking on design software maker Autodesk, and Jana Partners pushing for changes at silicon carbide maker Wolfspeed.
Despite the surge in activist campaigns, companies have been successful in defending against these attacks, resulting in fewer dissidents winning board seats compared to previous years. In the first half of the year, activists won only 11% of the seats they sought in U.S. proxy fights, down significantly from the 65% success rate in 2023. Management has been able to convince shareholders that the current leaders are already pursuing the right strategy and that their board directors are more qualified than the activists’ nominees, leading to a decrease in activists’ success rates.
The Influence of Veteran Activists
While some newcomers to the activist investing space may have been prompted by the average activist returns of 18% in 2023, the returns for the first five months of 2024 have been flat. However, veteran activists like Elliott and Carl Icahn continue to secure directorships. For example, Elliott joined the Crown Castle board, and Carl Icahn was given two seats at JetBlue. The data from Barclays shows that major activist hedge funds obtained 24 seats in the first half of 2024, compared to 29 in all of 2023, indicating a slight decrease in their influence.
While activist investors have historically targeted tech firms for change, there is a shift in focus towards industrial companies, as some investors see potential opportunities in this sector. Sachem Head Capital Management’s success in joining the board at cloud communications firm Twilio this year highlights this trend. With uncertainty surrounding interest rate cuts, geopolitical turmoil, and a looming U.S. presidential election, corporate fights between activists and management are expected to become tougher in the coming months.
Activist investors are facing tough battles in 2024 as companies have become more effective in defending against their campaigns. The increase in activist activity may lead to more costly battles, but the decrease in success rates for activists indicates that companies are successfully managing to persuade shareholders to support existing leadership and board directors. Despite these challenges, veteran activists continue to secure directorships, while a shift in focus towards industrial companies is observed among investors. The coming months will likely see heightened tension between activist shareholders and management as both sides seek to assert their influence over corporate decision-making.