Activist shareholders, also known as corporate vultures, are sometimes more negatively associated with companies.
Methods employed:
After identifying a target company, activist shareholders typically take the following steps:
- Activist shareholders “buy” shares in the company. This is because a large or all of the equity is often held through derivatives, allowing them to claim a seemingly large position in the company while bearing relatively little actual cash risk and investment. This method also provides clues about the investment horizon of activist shareholders, which may differ from other investors because derivatives have expiration dates, while stocks do not.
- They may also engage in public disputes with the target company and seek board representation, spin off parts of the business, merge with or sell to competitors, or raise debt to execute share buybacks (activist shareholders can help complete buybacks by offering shares).
- If the company responds to the activist shareholders’ demands, they will sell their shares.
- Activist shareholders may also demand significant changes: including more diversified shareholding, higher leverage, and a change in management.
- Wait for the right opportunity and repeat the above steps for another target.
What’s the strategies?
Active shareholders typically use the following strategies to maximize their capital returns:
- Increasing stock holdings
- Major company restructuring, transformation, or change
- Using methods or incentives to drive up the stock price
What are the ways to profit?
Once active shareholders have successfully implemented some of the common strategies described above, they can enter the actual harvesting phase. Active shareholders use the following methods to profit:
- Selling their holdings
- Selling assets
- Spin-off listings
- Using debt financing
- Stock buybacks
Famous Active Shareholders
- Carl Icahn
- Elliott Investment Management
- Pershing Square
Relative articles
- “How activist shareholders make money?“
- “Dear Shareholder“
- “Outsiders, one of the greatest investment books for managment team“
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