An activist investor is an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors. Companies that are mismanaged, have excessive costs, could be run more profitably if taken private, or have other problems the activist investor believes they can fix are often targets for activist investors.
Breaking Down Activist Investor
Private equity firms, hedge funds and wealthy individuals are the types of investors that might decide to act as shareholder activists. One indication a company has become a target for activist investors is the filing of a Schedule 13D with the Securities and Exchange Commission, which is required when an investor acquires 5% or more of a company's voting class shares.
Carl Icahn founded Icahn & Co in 1968 as a securities firm focused on arbitrage and options trading. Beginning in 1978, he began taking sizable and sometimes controlling positions in companies. His targets have included RJR Nabisco, Texaco, Western Union, Viacom, Revlon, Time Warner, Yahoo!, Motorola, Apple and eBay, just to name a few. In 2015, he pushed Apple CEO Tim Cook to use the company's cash pile to increase the size of its share buyback program.
In 1987, Icahn formed Icahn Enterprises (IEP), a diversified holding company that attempts to unlock shareholder value by influencing management or taking a controlling interest. As of December 2019, Icahn Enterprises held significant positions in Herbalife (HLF), Cloudera (CLDR), and Hertz Global Holdings, among other companies.
Bill Ackman is the founder and chief executive of Pershing Square Capital Management. In the past, Pershing has taken positions in Target Corporation and Wendy's International. Ackman's more well-known moves include a disastrous short position in Herbalife, losing to Carl Icahn, who took the opposite side of the trade. The two have a history of antagonism. In 2003, Ackman sold Icahn his stake in Hallwood Realty, and argued he was owed additional sums when Icahn later merged Hallwood with another real estate company.
Pershing Square Capital Management is the investment manager for Pershing Square Holdings, which trades on the London Stock Exchange. In the first half of 2020, Pershing's activities included re-establishing a core position in Starbucks (SBUX), existing a position in Berkshire Hathaway (BRK.B), and raising $4 billion to establish a special purpose acquisition company (SPAC).
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 $64 million stake in Yelp (YELP).
Dan Loeb is the founder of Third Point LLC, which is the investment manager for Third Point Offshore Master Fund, a London-listed closed-end fund with $8.6 billion in assets. 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 held sizable positions in Baxter International and Ligand Pharmaceuticals.