Are Activist Investors Ever Good for Shareholders?

In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss activist shareholders, which have been increasingly in the news lately with companies like Herbalife, Dell, and J.C. Penney. The question many individual investors are asking is: Are these activist investors good for the stocks that I own? Martin explains that they will likely create short-term value, but long-term investors should be wary of activist investors.

A transcript follows the video.

The full interview with Roger Martin can be seen here, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.

If you're on the hunt for a great stock idea, The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Brendan Byrnes: Let's talk about activist investors. You saw Icahn recently purchasing a 6% stake in Dell. He's got 10% of Netflix. Bill Ackman we talked about earlier, obviously J.C. Penney. He lost his proxy fight with Target.

If I'm a shareholder and I own one of these companies, should you welcome an activist investor coming in? What effect does that have on strategy?

Roger Martin: I think it really depends. What I've seen of the activist investors ... I actually haven't seen any activist investor out there be able to improve the long run operations of the core company they've gotten involved with.

There's undoubtedly examples where it's happened, but I don't see any consistency of that.

What I see is them triggering something that makes the capital markets very happy in the short term, so when Ackman went in and said, "Fortune Brands, you have to split into three companies," everybody said, "Oh, wow, this is great. We've released all this value," so there's a bump.

The question is, can you make the performance of each of the companies that much better? I think a short-term shareholder, if an activist comes in and forces them to divest something -- sell off their real estate assets or monetize some portfolio of assets -- they can have a bump in the stock.

But I think if you're actually a long-term shareholder -- let's say you're a pension fund or something that wants to hold a given stock for 30 years and an activist comes in -- I don't think it's particularly good for you because what they tend to do is make their money on a one-time bump.

As soon as we create the spinoff and we get a bump then we, the activist, can get out. It's a mixed blessing, depending on what your interest is as a shareholder.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 28, 2013, at 3:11 PM, erikshun wrote:

    Loeb for Yahoo! - great. got Scott Thompson ousted and now Marissa Mayer leading the charge. this is great for Yahoo! and wouldn't have been possible w/out Loeb leading the charge to get fruitcake Thompson out of the position he had no right being in. this pretty much saved Yahoo!. Marissa is a perfect fit and Thompson would have sent Y! down the toilet.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2336918, ~/Articles/ArticleHandler.aspx, 9/26/2016 12:17:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,120.41 -141.04 -0.77%
S&P 500 2,150.34 -14.35 -0.66%
NASD 5,264.98 -40.77 -0.77%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
FBHS $58.93 Up +0.26 +0.44%
Fortune Brands Hom… CAPS Rating: **
HLF $61.26 Up +0.03 +0.05%
Herbalife CAPS Rating: *
JCP $9.67 Down -0.11 -1.12%
J.C. Penney CAPS Rating: *
NFLX $94.27 Down -1.67 -1.74%
Netflix CAPS Rating: ***
PG $87.53 Down -0.23 -0.26%
Procter and Gamble CAPS Rating: ****
TGT $67.68 Down -1.10 -1.59%
Target CAPS Rating: ***