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Activist investors have their sights set on public companies in 2022

February 3, 2022, 11:32 AM UTC

Good morning,

There’s action from activist investors on the horizon for 2022, spurred by underperformance and a greater focus on governance. 

It was a record year for IPOs in 2021 and a boom in SPACs. But half of the IPOs began trading below their offering price in December. And January was a lousy month for U.S. stocks.

“And does that attract activists? Absolutely,” says Shane Goodwin, Ph.D., a professor of finance and associate dean of graduate programs at the Cox School of Business at Southern Methodist University (SMU). 

Hedge fund activists like Bill Ackman or Carl Icahn are going to be focused on companies that are “clearly underperforming” and “maybe there’s an opportunity within the industry for sale,” he says. In fact, any companies that are underperforming, “whether they were just newly [public], or whether they’ve been public for a very long time, are definitely going to be in the crosshairs,” he says.

Peloton Interactive Inc. went public in 2019. Blackwells Capital LLC has a stake of less than 5% but is preparing to push the company to fire CEO and co-founder John Foley, according to reports. Peloton’s shares have fallen more than 80% from the company’s all-time high a year ago. Activist investors are unhappy with Kohl’s CEO Michelle Gass’ strategy for the department store chain as they circle Kohl’s with takeover offers. Starboard Value is offering $9 billion to buy the retailer. 

But what we’re also seeing today is governance-related activism, Goodwin explains. For example, “The Big Three— BlackRock, State Street and Vanguard,” he says. Collectively, the firms have a significant ownership stake in S&P 500 companies. “They have a lot of voting clout,” Goodwin says. They’re really focused on board diversity as well as the environment, ensuring companies have a sustainability plan focused on the long term, he says.

A former investment banker, Goodwin has 25 years of strategic advisory, M&A, and corporate finance experience at firms including Goldman Sachs, Citigroup, and Wells Fargo Securities. I asked him to predict which companies should prepare for activist activity. He said he doesn’t publicly disclose that info but did share some insight. As the environment and sustainability remain in the spotlight, the utilities and energy sectors are ripe for activism, he says. “Companies will definitely need to be thinking about switching to being carbon neutral, sooner rather than later,” Goodwin says. And he predicts the airline industry will be in the spotlight as well.

“M&A had a record year [in 2021], and it will continue this year,” Goodwin says. “And that’s a good environment, generally, for activism.” In regard to the financial sector, there’s a lot going on the with consolidation of regional banks, he says. 

When it comes to gauging your company’s vulnerability to activist investors, “if you’re a good CEO, and a good CFO, that’s really your job,” Goodwin says. “If you’re thinking about all the governance-related issues for your board, how to run your business in a profitable way, and creating value, that’s your best inoculation to any activist or any bad conversation with your shareholders, in general.”



See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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