Shareholder activism, love it or hate it, has seen a resurgence of late. Hedge fund and private equity managers are becoming far more active in the management and direction of companies. Many question the effectiveness of these activists in terms of their ability to increase the value of companies. Let's take a look at two recent examples.

The Good
The owner of the Washington Redskins, Daniel Snyder, had more success in 2005 in the corporate world than his team did on the field (lost in NFC Division game). In August 2005, Snyder, the largest shareholder of theme park operator Six Flags (PKS), launched a tender offer to increase his stake in the company from 11.7% to 34.9%. His intention was to remove the management team which he felt underutilized the company's assets. Snyder didn't end up increasing his stake but did win a proxy battle which resulted in him taking over three seats on the board.

With the seats Snyder removed the management and placed Mark Shapiro as the new CEO. Since the tender offer, shares in Six Flags have nearly doubled as the company has initiated a clear plan to improve revenue and increase attendance at its parks. This is a good example of an instance where a shareholder stood up and enacted positive change.

The Bad

In April 2005, Carl Icahn the largest shareholder of Blockbuster Inc. (BBI) sent a letter to CEO John Antioco, stating his displeasure in the compensation package that Antioco received in 2004 ($51M) along with the way in which the company was being run (shares fell 50% in 2004). Icahn was looking for the company to pay a one-time dividend of $330M, cut its "excessive" spending on its online rental service, and reduce pay packages for executives. Icahn also nominated himself and two others to the board. All three were nominated at the 2005 annual meeting, giving Icahn much more influence in the company.

Since the letter the one-time dividend has not materialized, however the company has cut costs recently including slashing 300 corporate jobs. Icahn's activism has done little to impede the sell-off in Blockbuster shares, which have fallen over 60% since the appointment of Icahn to the company's board. Factors weighing on the stock price include increased competition from Netflix (NFLX) and a sluggish environment in the film industry in general. It looks as though the industry-wide problems are too much for this active shareholder to overcome.

While these are just two examples of shareholder activism in the last few years, it seems to be the general trend, one of hit and miss. Other companies that have gone through some recent battles with activists along with their 52-week share performance include Fairmont Hotels (FHR 43.08%), BKF Capital Group (BKF -65.67%), and Cenveo (CVO 382.76%).

In the future if a company you are invested in goes through one of these battles make sure that the plan put forth makes sense for the company and does not simply meet short-term goals of the activist.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  4. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  5. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  10. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!