By Yuanchen Chu

Who are Activist Shareholders? 

Activist shareholders are shareholders of a company who take stakes in the company they see as undervalued and push for changes such as higher dividends, share buybacks, cost cuts, management shakeups, and sometimes even the breakup of the companies. Activist shareholders may just take up a fairly small stake (usually less than 10%) of the company, as it’s enough to launch a campaign to push for changes but not so expensive as a full takeover bid.

Effects of Activist Shareholders

Some people argue that activist’s campaigns might push a company to take short-term steps that sacrifice a company’s ability to generate revenue in the long run. However, according to data compiled by Bloomberg, companies that went through activist’s campaigns from 2009 through 2013 gained 48% on average, beating the Standard & Poor’s 500 stock index by around 17%. A study published by Columbia and Harvard professors analyzed around 2,000 activist campaigns from 1994 to 2007, and they found out that the target companies valuations improved in the five years period after the campaigns. Three years after the activist shareholders sold their shares, existing shareholders still had positive returns. So the date along with the study proves that activist shareholders still creates value for the company in the long run.

However, it is not to say that activist shareholders are always good for the company. Activist’s campaigns often involve returning cash to shareholders by increasing a company’s debt. Those cash that could have been used in productive ways for every stakeholders of the company is now used to benefit one group of particular stakeholders and the financial position of the company may weaken. Some companies saw their stock prices rises while their credit rating fell due to increase in debt.

Shareholders activist could definitely be shareholders good friend and increase shareholder’s value by striving for financial changes in the company. Activists buy the stakes of the company with the intention to improve the value of the companies. They normally have the experience and expertise on how to carry out the changes they deem necessary, so usually stakeholders can benefit from these changes the activists are campaigning for. However, it’s still necessary to analyze the intention of the activists to see if they are pushing for certain change for the benefit of all the shareholders or just for their personal gain.