Shareholder activism

Shareholder Activism represents a variety of activities by one or more of a publicly-traded company’s shareholders that are envisioned to result in some transformation in the corporation. The activities fall along a spectrum based on the importance of the wanted change and the boldness of the investors’ activities. . At Reorg all your financial requirements are handled by a team of highly qualified professional staff.

On the more hostile end of the activism is hedge fund activism that seeks a substantial change to the company’s strategy, financial structure, management, or board. On the other end of the activism are private engagements between shareholders and companies

Hedge fund activism

Up to the late 1990s, there was little evidence that shareholder activism produced any economically significant developments in share prices or the operating functioning of corporations. By the early 2000s, a new form of shareholder activism began to appear, activism by hedge funds.

Hedge fund activism vowed to be different and more active than past efforts. As it turned out, the assurances of hedge fund activism have been generally, though not completely, unfulfilled.

Hedge fund activists have motivated corporate managers to increase shareholder value, and in that sense they have thrived where prior activists failed, doing more to reward a curbed market for corporate control than previous activism.

The success of hedge fund activists has been slim; they seem to flourish only when they help the sale of the target firm.

Background of hedge fund activism

These activists have been involved in this type of activity for decades. In the 1980s, they often wanted the breakup of the company, so they were portrayed as “corporate raiders.” These activists usually used their capital to obtain a big block of the company’s shares and engage in a proxy race for control of the board.

In the 1990s, new funds entered this market place. These new funds raised capital from other investors and used minority board, one or two board seats, rather than a board bulk to influence corporate strategy. The company breakup was still one of the potential changes pursued by these activists, many also seek out new executive management, operational proficiencies, or financial restructuring.

Present hedge fund activism

During the past decade, the number of activist hedge funds throughout the world has markedly increased, with total assets under management now surpassing $100 billion. Since 2003, new activist hedge funds have sprung.

The objectives of today’s activist hedge funds are wide-ranging, comprising all those which were previously historically pursued, scrutinizing the company’s “capital allocation strategy”. The aim is the return of large sums of reserved cash to investors by way of stock buybacks or dividends.

Capital allocation means distribution and investing of the company's financial resources in manners that will boost its efficiency, and maximize its revenues. A firm's management finds ways to optimally allocate its capital in ways that will create wealth for its shareholders.