Small investors only have so much say at a company because each individual only owns a tiny fraction of the outstanding stock. But activist investors buy a lot of stock, often amassing multimillion-dollar (or larger) positions so they can get a seat at the decision table.
Right now, relatively small biotech company Azenta (AZTA 1.32%) and entertainment giant Disney (DIS -0.04%) are both facing activist calls for change. Here's how to think about such activist activity.
Azenta has a lot of cash
Azenta has a market cap of $2.9 billion, which isn't tiny, but it's hardly a large company in the healthcare sector. The company provides products and services around sample management. Sample management involves the selection, collection, storage, and retrieval of samples (often biological) plus the related data.
What's most interesting here, however, is that Azenta sold a semiconductor business in 2022, netting it proceeds of around $2.4 billion. The company used some of the cash for an acquisition and to buy back stock, but at the end of the fiscal third quarter, it still had roughly $1.3 billion in cash and marketable securities on the balance sheet and no long-term debt.
Image source: Getty Images.
That's a lot of money when you consider it makes up over a third of the company's market cap. Companies with excess cash don't always make shareholder-friendly decisions -- which is why more aggressive investors might find it interesting that Politan Capital has built a sizable stake in the company.
Politan is basically talking to management to try to ensure that the cash gets used wisely. There's no guarantee that the discussions will be constructive or lead to any improvement in the share price. However, more active investors might want to dig into the story for more details.
Basically, Politan has unearthed a unique situation at a company that would likely fly under the radar of most investors. Having lots of cash means Azenta has a lot of opportunities, including investing in its own business, more stock buybacks, special dividends, and further acquisitions. You don't need to invest along with Politan, but with a little more research, you might decide that this activist investor is onto something worthwhile.
Media giant Disney is struggling
At the other end of the spectrum is $150 billion market cap media giant Disney. The company owns some of the most iconic brands in the world, including Mickey Mouse, Marvel, and Star Wars, among many others. But the media sector is in something of a state of flux as streaming upends the traditional business model. Meanwhile, the pandemic was a major hit to the company's amusement park and cruise properties, causing shifts and changes in another line of operation.
What's notable here is that all of this externally driven change sped up dramatically when the company transitioned to a new CEO. Disney's troubles drew the attention of Nelson Peltz, a well-known activist investor. When he first started to build a stake and talk with the company it resulted in some quick business shifts, including the termination of the CEO and the return of his predecessor, Robert Iger. Peltz stepped back to see what would happen. The answer was clearly not enough, because the activist is rumored to be back again and looking for a board seat.
His desires are similar to those expressed in earlier activist efforts at other companies, including Procter & Gamble and Unilever. Basically, Peltz wants to see costs brought down and accountability increased. And in the case of Disney, a better plan for the next CEO transition.
Disney isn't in a great place business-wise today, making it something of a turnaround story. However, given the success Peltz has had helping to guide other large companies, his presence at Disney might give investors more confidence that shareholder returns are being considered carefully in the decision-making process. That might be enough to get more aggressive investors to put some money in the stock despite the risks Disney faces today.
Interesting ideas brought to light
The big takeaway for investors with Aztena and Disney is that there's an interesting story unfolding at each company. For Azenta it is flush with cash, leading to questions of how best to use that money. And that's what the activist there is asking on behalf of shareholders. Meanwhile at Disney, which is facing a difficult industry transition, a highly experienced and well-known activist is attempting to help guide the struggling company's turnaround with a shareholder-friendly focus.
You don't have to invest in either of these stocks. But knowing that there's an activist at the company not only highlights what is going on in each situation but might, for more aggressive sorts, make the investment thesis at each a little more compelling. After all, the activist is a shareholder, just like you.
