Last week, Bill Ackmans Pershing Square announced its
latest activist play: an 8 percent stake
in Automatic Data Processing.
The payroll data processor is Ackmans first target
since his disastrous run with Valeant Pharmaceuticals ended in
March. Pershing Square said little about the choice beyond that
extensive research and due diligence showed
an enormous opportunity to improve the operating
performance of ADP.
New research, though, might offer more insight into how
activists choose their investments, with two recent academic
studies examining some of the characteristics that might make a
firm more likely to be targeted by an activist investor.
One paper, authored by Bill Francis,
Yinjie Shen, and Qiang Wu, analyzed whether gender played a
role in which companies activists went after. Using a dataset
of more than 2,000 activism events launched by 522 hedge funds
between 2003 and 2014, the researchers found that activists
were at least 54 percent more likely to target a hedge fund
with a female chief executive officer.
Recent examples include Carl Icahns Xerox investment
in 2015 when current chair Ursula Burns still served as
CEO and Nelson Peltzs Trian Fund, which has gone
after such female-led firms as PepsiCo, helmed by CEO Indra
Nooyi, and DuPont, whose chief at that time was Ellen
[II Deep Dive: Long-Term Investors are Reaching Out to
Activists for Help]
Although the authors noted that the findings were very
preliminary, they suggested that the preference could be
driven by the difference in managerial styles between men and
women, arguing that female CEOs were more likely to communicate
and cooperate with activist hedge funds. Ackmans pick,
ADP, is led by a male CEO, Carlos Rodriquez and the
payroll firm has already begun pushing back against Pershing
The authors said that female CEOs experienced higher pay
cuts and were more likely to be ousted than male counterparts
as the result of activist campaigns.
A separate study by Andrew Carrothers, an
assistant professor at the University of Prince Edward Island,
said that activist hedge funds were also more likely to target
firms with high levels of institutional ownership, with a
particular preference for more short-term-oriented
The findings were based on instances of activism by 223
hedge funds at more than 1,000 companies between 1995 and 2007.
On average, the targeted firms were 55.9 percent owned by
Carrothers suggested there was a mutually beneficial
relationship between activists and other institutional
owners, adding that hedge funds seek the support of other
institutional investors in implementing activist
Investors, meanwhile, benefit regardless of their time
horizon because hedge fund activism generates large
short-term and long-term abnormal returns without increasing
volatility, he argued.
Regardless of the efficacy of traditional
institutional investors as activists, he said,
their presence at firms targeted by hedge funds is an
indirect path through which other institutional investors
improve governance, performance, and shareholder value at