Activist investors have historically avoided technology. It’s a growth industry that usually has high valuations. Plus, the technology business is complex and fast-moving — leaders need a vision of the future, not financial engineering and cost-cutting expertise.
But as the mature, consolidated industry ages, activists are increasingly drawn to tech giants. More importantly, they’re increasingly getting results. Yesterday eBay and PayPal enjoyed a successful split, appeasing agitator Carl Icahn. H-P’s massive upcoming breakup was praised by activist Ralph Whitworth. And last night we learned Qualcomm is likely to succumb to Jana Partners, with an announcement of a strategic review and possible break-up expected.
There’s even an activist investor known for exclusively targeting the tech industry: Jesse Cohn, of Elliott Management, who appeared on Fortune’s 40 under 40 list last year. At the time he had led more than 30 campaigns against companies like Compuware (CPWR), BMC Software and EMC (EMC).
If it feels like there’s a new activist situation in tech every month, it’s because there almost is. S&P Capital IQ calculates that between 2005 and 2010, only 11 public tech companies with market caps higher than $1 billion dealt with activist investors. Just two per year. That increased fivefold over the following four and a half years, with 50 activist investor situations taking place between 2010 and mid-year 2015.
The “urge to merge” is dead, in tech at least. S&P is calling this the era of “unrest to divest.”
Beyond big break-ups and spin-offs, growing companies with lots cash on hand are vulnerable. See Icahn’s agitating with Apple (AAPL) for ever-more share buybacks. Apple issued an $80 billion share buyback program; Icahn wants $50 billion more. “The company’s enormous net cash position continues to grow while the company’s shares are still dramatically undervalued,” he wrote in an open letter to Tim Cook in May.
Google (GOOG), which has nearly $70 billion in cash on hand, recently hired itself an activist-savvy CFO in Ruth Porat. She was previously CFO of Morgan Stanley, which fended off activist investor Dan Loeb of Third Point Capital. In 2013, Loeb supported the company’s turnaround efforts while criticizing its high executive pay. Of course, Google’s best defense against activists is its unique dual-class stock set-up, which gives its founders more control over the company than common stock owners.