The middle market is beginning to see its fair share of shareholder activism. Previously, it was a tactic most associated with the likes of Carl Icahn and others who would amass large stakes and target mega companies such as Dell Inc. Spurred on by their high-profile success, a growing crop of firms is looking further downstream, making smaller companies susceptible to the same scrutiny as larger ones.
“It’s absolutely a growth area for sure,” says Sharon Geraghty of Toronto law firm Torys LLP. “There’s lower risk, you can do it with less capital and the idea is to generate some increase in the stock value for your company and reap the benefit of that.”
As a result, the number of companies being targeted by shareholder activism are on the rise, according to the Activist Investing Annual Review 2014. January saw 31 companies being targeted by activist investors, a pace that should surpass the 2013 total of 237. That’s 9 percent higher than the 2012 total of 218 and more than double 2010’s tally of 114.
“Going to smaller companies makes sense,” Geraghty adds, since board members are more attentive to what shareholder activists are saying.
Blue Harbor Group, which owns a 2.5 percent stake in Tribune Co., has been urging the media company to sell real-estate assets, as well as the spectrum its broadcast properties own, as a way to raise shareholder value. The Greenwich, Conn. firm has been known to bolster the share price of several strategic buyers, including CACI International Inc. (NYSE: CACI). The security-technologies company made an $820 million acquisition, which, along with buybacks, helped shares hit an all-time high.
Other activists in the space are taking a cue from Blue Harbor. Eminence Capital LLC spoke up when Jos. A. Bank Clothiers Inc. (Nasdaq: JOSB) decided to buy Eddie Bauer for $825 million. The deal came after Jos. A. Bank rebuffed an offer from Men’s Wearhouse Inc. (NYSE: MW). Eminence, a minority stake owner in Jos. A. Bank and Men’s Wearhouse, wasn’t happy with the decision. The New York firm sued Jos. A. Bank, believing the Eddie Bauer deal would “devastate the value of Jos. A. Bank’s shares, which are now valued based on the market’s expectation that a deal with Men’s Wearhouse will in fact happen.”
Then there’s Starboard Value LP, a 5.5 percent stake owner in Darden Restaurants (NYSE: DRI), operator of Red Lobster, Olive Garden and LongHorn Steakhouse. The New York-based firm launched a plan in late February to break up Darden and sell assets. There’s also Sachem Head Capital Management, which owns a 3.7 percent stake in consumer products maker Helen of Troy Ltd. (Nasdaq: HELE). The Branford, Conn.-based firm is hoping for a sale.
“That’s the trend for 2014,” Geraghty says, regarding shareholder activists. “We’ll see more and more.”