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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Activists have the wind in their sails. The number of campaigns, globally, is the highest since 2018. Little wonder. Rather than having to lay siege to boards and management, they now appear to be pushing at an open door.
BP is a prime example. Chief executive Murray Auchincloss on Wednesday unveiled a strategic overhaul just weeks after Elliott Management was revealed to have taken a near 5 per cent stake in the underperforming British oil major. A year ago, Auchincloss had thrown his weight behind BP’s previous strategy of cutting oil and gas output by a quarter by 2030 and investing heavily in renewables — to the increasing dismay of other shareholders.
Elliott has also seen swift results at Honeywell International. Others are reaping rapid rewards, too. Nelson Peltz’s Trian Partners gained a board seat at Rentokil Initial three months after it emerged it had taken a position in the UK pest controller. FTSE 100 conglomerate Smiths Group announced a break-up not long after US activist Engine Capital called on it to split.
Data on how quickly activists achieve results is often clouded by the fact that many campaigns start behind closed doors. Taking chief executive resignations as an indicator, though, victories do appear to be stepping up.
According to Barclays’ 2024 Review of Shareholder Activism, 27 chief executives resigned from companies targeted by activists last year, above the four-year average of 16. In the past two years, CEOs at a fifth of target companies have resigned within a year of an activist starting their campaign. By way of reference, the average annual turnover of chief executives in the S&P 500 index is 12 per cent.
There are a number of possible factors at play. First, many recent high-profile campaigns have targeted underperforming conglomerates — where activists can end up getting egged on by other frustrated investors.
Breaking up conglomerates or unwieldy portfolio companies is nothing new, of course. But dismantling conglomerates is a strategy that does better in more robust M&A environments. The widely touted revival in animal spirits may further help activists’ cause. BP confirmed on Wednesday it would review its lubricants business Castrol, which might be worth about $10bn. Auchincloss said he would target a total of $20bn of divestments by 2027.
The rise of passive investment may also be playing a role. Index trackers increasingly occupy the top slots of company shareholder registers, rather than vocal institutional investors. This creates a gap for activists to step in and hold board and managements’ feet to the fire, often with strong support from other minority shareholders.
Clever boards will pre-empt attacks by behaving more like activists themselves. When BP’s performance is reassessed in years to come, as no doubt it will be, that will probably be the biggest takeaway. Its chair Helge Lund should have cut ties with the previous strategy a year ago. At least then he, not an activist, could have claimed the credit.
