Finance Docket: Activists Heat Up, SEC To Cool Them Down
Ed. note: This article first appeared in the Finance Docket newsletter. Subscribe by entering your email address below to read the full newsletter.
It’s been, well, an active couple of weeks for hedge fund activists. That’s especially true of two of the biggest.
In the wake of Rupert Murdoch’s retirement, Starboard Value is taking aim both at News Corp.’s dual share-class structure and its digital real-estate business. If that weren’t enough for Jeff Smith & Co., they’ve simultaneously built a significant stake in contract-research operation Fortrea Holdings.
Trian Fund Management is also taking aim at a media giant, renewing its bid for board seats at Disney as its patience with Bob Iger dissipated along with the company’s stock price. Like Starboard, Trian’s also not satisfied with one tangle at a time — it’s built a stake in struggling insurance giant Allstate, as well.
As you’ll see below, it’s been a tough week for publicly listed shoe companies, and Vans owner VF isn’t immune, finding itself under the scrutiny of Engaged Capital, which looks set to push for cost savings, spin-offs and sales, new board members or all of the above.
Even non-activists are getting in the game, with JAT Capital threatening a proxy battle with Overstock in the wake of its purchase of the bankrupt Bed Bath & Beyond.
Of course, a frontal activist assault isn’t the only attack companies are vulnerable to.
With the letters “E.S.G.” — unfairly or otherwise — rather mud-bedraggled at the moment, short-sellers have pounced: Hedge fund bets against already inflation-battered green-economy stocks have contributed to a nearly 30% drop in the S&P Global Clean Energy Index this year.
Goldman Sachs’ global head of sustainability and impact solutions for asset and wealth management thinks there’s a defense: the circular economy.
According to John Goldstein, inflation’s effect on input prices has made more efficient use of resources all the more important.
“Waste and materials themes become particularly attractive,” he said. (Speaking of which, has your company figured out who’s going to figure out all of this E.S.G. stuff yet?)
Of course, if water, waste and energy management solutions aren’t enough to fend off the activist hordes, the Securities and Exchange Commission may yet come to the rescue.
The regulator last week slashed the amount of time activists have to report stakes of 5% or more. Instead of 10 calendar days to build their pile of shares, investors now have just five business days.
Activists, who have been fighting the rule since its proposal last year, complain that the tighter window could make it hard if not impossible to mount a profitable campaign; the sole SEC objector, Republican Hester Peirce, said the new rule “might better be characterized as an insulation effort — insulating corporate managers from scrutiny.”
Nor are short-sellers immune from the SEC’s new heightened scrutiny: The Commission approved another new rule requiring hedge funds and others to report gross short positions of 2.5% or $10 million every month.
What’s more, institutions that lend shares to short-sellers will also have to provide more information, and quickly — every day.
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