Mostly focused in the U.S., activism has grown fast. The number of investor-led campaigns to push companies for reforms has grown by more than 100% during the last three years. The reason is simple: Activism works as an investment strategy. According to recent data commissioned by Linklaters and compiled by Activist Insight, activist positions have done extremely well. Annually, they have returned more than 50% on invested capital when the S&P 500 is up by “just” 20% year to date.
Usually, activist strategies were used “against” the managements of American corporations. Nowadays, activism is becoming more frequent in other parts of the world. Here I post a few examples of non-U.S. companies that are being pushed by two particularly aggressive activist investors: TCI, the hedge-fund run by Chris Hohn, and Third Point, Daniel Loeb's fund.
A Politically-Sensitive Spin-Off
Hohn is putting pressure on the defense and aeronautic giant European Aeronautic Defence and Space Company (EADSY, Financial), the owner of Airbus – which, according to Hohn, constitutes a very valuable de facto duopoly in the global commercial aviation industry. The investor is pushing EADS's CEO to transfer the company's 46% stake in Dassault Aviation (maker of Falcon business jets and the Rafaele fighter jet) directly to shareholders.
On top of seeing this “quick-cash” return on his investment, Hohn thinks EADS is a wonderful company with great earnings visibility. As a matter of fact, Airbus's narrow body production is fully booked out past 2019. Besides, the company has no debt (it has a more than eight billion Euro net cash position) which gives the company great flexibility to increase its 35% or higher cash dividend pay out ratio – EADS's dividend yield is currently low at just below 1% compared to Boeing (BA, Financial)'s 1.45% cash dividend yield. EADS trades at 13 times 2014 earnings while Boeing, which is its closest competitor, sells for 18 times 2014 earnings.
Daniel Loeb's Main Art Holding
Daniel Loeb is a famous contemporary art collector and he thinks he should be part of Sotheby (BID, Financial)'s board. As a matter of fact, Third Point, with a 9.3% stake in the company, is Sotheby's biggest shareholder. Loeb wants the company to increase its efficiency through slashing costs, increasing its footprint in contemporary art and focusing on on-line auctions the way privately held Christie's has done it. Actually, Sotheby's has trailed its main competitor in everything from sales volumes to operating margins during the last few years. Besides, the company could give cash back to shareholders through selling its New York and London properties, valued at around $850 million, which represents over 24% of the company's total market capitalization.
The activist investor believes the company's CEO (William Ruprecht) is not the right man for the job and should be fired. The board has answered to Loeb's pressure by adopting a poison pill aimed to deter any investor from acquiring more than 10% of the company's shares. Even when the pill is an efficient way to contain investor's pressure, I truly believe on Third Point's ability to induce changes and add shareholder value. Even when Sotheby's trades at 27 times 2014 earnings and has returned over 49% year to date, I believe there is still value to be unlocked.
Bottom Line
The success of activist strategies is pure capitalist common sense. The owner's eye drives down costs and adds value. Above all when owners are as smart and business savvy as Hohn or Loeb, I am sure we shall see much more activist investors actively playing in the worldwide investment scene during the next few years. This is indeed good news to all individual and institutional non-activist investors.
Usually, activist strategies were used “against” the managements of American corporations. Nowadays, activism is becoming more frequent in other parts of the world. Here I post a few examples of non-U.S. companies that are being pushed by two particularly aggressive activist investors: TCI, the hedge-fund run by Chris Hohn, and Third Point, Daniel Loeb's fund.
A Politically-Sensitive Spin-Off
Hohn is putting pressure on the defense and aeronautic giant European Aeronautic Defence and Space Company (EADSY, Financial), the owner of Airbus – which, according to Hohn, constitutes a very valuable de facto duopoly in the global commercial aviation industry. The investor is pushing EADS's CEO to transfer the company's 46% stake in Dassault Aviation (maker of Falcon business jets and the Rafaele fighter jet) directly to shareholders.
On top of seeing this “quick-cash” return on his investment, Hohn thinks EADS is a wonderful company with great earnings visibility. As a matter of fact, Airbus's narrow body production is fully booked out past 2019. Besides, the company has no debt (it has a more than eight billion Euro net cash position) which gives the company great flexibility to increase its 35% or higher cash dividend pay out ratio – EADS's dividend yield is currently low at just below 1% compared to Boeing (BA, Financial)'s 1.45% cash dividend yield. EADS trades at 13 times 2014 earnings while Boeing, which is its closest competitor, sells for 18 times 2014 earnings.
Daniel Loeb's Main Art Holding
Daniel Loeb is a famous contemporary art collector and he thinks he should be part of Sotheby (BID, Financial)'s board. As a matter of fact, Third Point, with a 9.3% stake in the company, is Sotheby's biggest shareholder. Loeb wants the company to increase its efficiency through slashing costs, increasing its footprint in contemporary art and focusing on on-line auctions the way privately held Christie's has done it. Actually, Sotheby's has trailed its main competitor in everything from sales volumes to operating margins during the last few years. Besides, the company could give cash back to shareholders through selling its New York and London properties, valued at around $850 million, which represents over 24% of the company's total market capitalization.
The activist investor believes the company's CEO (William Ruprecht) is not the right man for the job and should be fired. The board has answered to Loeb's pressure by adopting a poison pill aimed to deter any investor from acquiring more than 10% of the company's shares. Even when the pill is an efficient way to contain investor's pressure, I truly believe on Third Point's ability to induce changes and add shareholder value. Even when Sotheby's trades at 27 times 2014 earnings and has returned over 49% year to date, I believe there is still value to be unlocked.
Bottom Line
The success of activist strategies is pure capitalist common sense. The owner's eye drives down costs and adds value. Above all when owners are as smart and business savvy as Hohn or Loeb, I am sure we shall see much more activist investors actively playing in the worldwide investment scene during the next few years. This is indeed good news to all individual and institutional non-activist investors.
