Activist investors have long been polarizing figures, but
the past year has brought to a head the debate over aggressive
investment tactics and their outcomes. Several high-profile
names among them
William Ackman of Pershing Square Capital Management and
Nelson Peltz of Trian Partners are under attack from
the companies they target and some
As a whole, activism hasnt been yielding great results
lately. Stocks targeted by activist investors lost 8 percent in
2015 while the S&P gained 1.4 percent, according to a
review by London-based data provider Activist Insight with U.S.
law firm Schulte Roth & Zabel. In January activist-targeted
stocks suffered their worst month in years, losing 6.1 percent,
Chicago-based Hedge Fund Research reports.
But one headline-grabbing activist investor Jeffrey
Smith, CEO of New Yorkbased Starboard Value
remains hopeful. We do have the benefit of getting
[shareholders] support often, Smith tells
Institutional Investor. Its because they
believe the people were recommending for boards will do a
better job representing the shareholders interests than
existing board members.
Smith, 43, founded the Starboard strategy with Mark Mitchell
in 2002 under the aegis of Ramius, the global
alternative-investment management subsidiary of New
Yorkheadquartered Cowen Group. They added Peter Feld to
the team in 2005. Starboard Value spun off from Ramius in early
2011 and has since operated independently.
Starboard keeps its performance numbers close to the vest,
but a look at recent positions shows mixed results.
Darden Restaurants, owner of the Olive Garden chain and
former owner of Red Lobster, has seen significant growth since
Starboard began putting pressure on its board in late 2013,
reaching a five-year high of more than $75 a share last summer.
After taking a 5.6 percent stake, Smith and Starboard quickly
pushed Orlando, Floridabased Darden to sell Red Lobster,
and in the fall of 2014 they succeeded in replacing all of the
But other targets seem like they have yet to pay off. At
last years Delivering Alpha conference in New York, Smith
Starboard had taken a position in Macys and would
encourage the retailer to sell its real estate. Macys
stock spiked briefly after his July announcement but has since
sunk from $72.80 to $42.32 as of February 23; in its earnings
report for the fourth quarter of 2015, the company hinted at
plans to start unloading property.
Smiths recent attempt to turn around office supplies
Staples by convincing it to merge with Office Depot has
left the former with a stock price of $9.28 as of February 23,
down from $16.59 in December 2014, when Starboard first argued
that Staples was undervalued. At
Yahoo, where Starboard had persuaded president and CEO
Marissa Mayer to spin off the U.S. tech companys stake in
Chinese e-commerce titan Alibaba Group Holding, the board said
in December that it will spin off its core businesses
But even if Starboards positions havent panned
out, businesses are changing their trajectories based on
Smiths advice. And though investors like Smith are often
singled out as the faces of activism, the strategy appears to
be gaining favor among those who typically take longer-term and
less aggressive positions.
Last year 49 of the investors who launched activist
campaigns against U.S. companies were new to the approach,
versus 36 investors in 2014, reports Activist Insight, a
London-based data provider. As shareholders get more
comfortable at making demands, the strategy has begun to feel
somewhat inevitable to investors, even if they pursue it
Its almost becoming an asset class, says
Robert McCormick, chief policy officer at global governance
firm Glass, Lewis & Co. in San Francisco, who cautions
against painting all activists with the same brush. There
are lots of different approaches, McCormick adds, noting
that many public pension funds are activists too, although they
may call it constructivist investing and hold their positions
Not all investors and shareholders see short-term positions
as a negative, though. A recent study led by Lucian Bebchuk of
Harvard Law School found that activist interventions tended to
make companies and shareholders better off in the short and the
long terms. Bebchuk sees activism as an important element of
corporate governance: It provides a source of market
discipline that operates to the benefit of shareholders and the
economy, he says.
Smith takes that view with him when he wades into battle
with boards, and its hard to deny that many shareholders
agree. Shareholders have become more willing to
understand that they are the owners of the business, he
says. Theyre more willing to support change if
change is warranted.
Follow Kaitlin Ugolik on Twitter at @kaitlinugolik.