An activist investor is an individual or group that purchases large numbers of a public company's shares and/or tries to obtain seats on the company's board to effect a significant change within the company. A company can become a target for activist investors if it is mismanaged, has excessive costs and could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable.
Breaking Down Activist Investor
Private equity firms, hedge funds, and wealthy individuals are types of entities that might decide to act as activist investors. One indication that a company may have become a target for activist investors is the filing of SEC Form 13D, which must be filed when an investor purchases 5% or more of a company's shares.
Carl Icahn is the founder of Icahn Enterprises, a diversified holding company that owns many of the investments that Icahn makes. In the past, Icahn has taken positions in companies such as Yahoo Inc., Netflix Inc., and the Clorox Company. One of Icahn's more notable investments was in Apple Inc. He bought 4.7 million shares of the company and pushed for a $150 billion share buyback. On June 27, 2016, Xerox Corporation announced it was putting an Icahn associate on its board of directors.
Bill Ackman is the founder and chief executive officer (CEO) of the Pershing Capital hedge fund. Pershing has taken positions in Target Corporation and Wendy's Company. Ackman's more well-known moves include a short position in Herbalife Ltd. and his big bet on troubled drug company Valeant Pharmaceuticals International Inc. In 2003, Ackman partnered with Icahn for shares of Hallwood Realty, a deal that resulted in Ackman suing Icahn over profits from the share sale.
David Einhorn is the founder and president of Greenlight Capital, a hedge fund he's managed for 20 years. Two of Einhorn's more well-known plays include shorting Lehman Brothers and Allied Capital Corporation. In May 2016, Einhorn announced that Greenlight had taken a $60 million stake in Yelp Inc.
Dan Loeb is the founder of the $10 billion hedge fund Third Point Partners. In 2012, Loeb took a position in Yahoo and eventually gained a seat on its board of directors. In 2013, Loeb announced that his company was the largest shareholder in Sotheby's. Third Point also has sizable positions in Baxter International Inc. and Ligand Pharmaceuticals Inc.