- The bear market in stocks last year has opened up a new window for aggressive activist investors.
- Once high-flying tech stocks and beloved brand names are subject to unfamiliar pressure from billionaire activists.
- Marc Benioff of Salesforce and Bob Iger of Disney are the latest high-profile CEOs to face pressure.
The bear market in stocks that began in 2022 has sparked a new wave of activist investor campaigns targeting the CEOs of major companies who were once thought untouchable.
Bob Iger of Disney and Marc Benioff of Salesforce are the latest high-profile bosses to face pressure from activist investors as shareholders feel the sting of underperforming stock prices.
Nelson Peltz of the Trian Fund and Paul Singer of Elliott Management recently launched activist investor campaigns against Disney and Salesforce, respectively.
Even Google parent firm Alphabet has been targeted by hedge-fund billionaire Christopher Hohn of TCI Fund Management for its steep underperformance relative to the broader tech sector.
Activist campaigns targeting firms of this size and caliber are uncommon, but their struggling share price has painted a target on management's back. Shares of Salesforce have dropped more than 50% from their peak, while Disney and Alphabet are down 49% and 35% from their peaks, respectively. The Nasdaq 100 meanwhile is down 30% from its peak.
It's those steep stock price declines that activist investors are using as a wedge in an attempt to win over shareholders and pressure management teams into gaining board seats or other concessions.
At a glance, the campaigns seem to be working, as both Salesforce and Disney saw their stock prices move higher following the news of the activist investor campaigns.
But in reality, given that much of the year-long stock price slump was driven by fast-rising interest rates and a flight to non-tech quality among investors, the activist investors still face an uphill battle in winning over shareholders and management teams.
That was evidenced by Disney's stinging rebuttal to Peltz's request for a seat on its board of directors last week.
Much of what these activist investors want from management teams is more discipline on spending and employee headcounts in order to drive a rebound in profit margins, which should ultimately help stage a recovery in the stock price.
Hohn of TCI told Alphabet in a letter last week that its recent reduction of 12,000 employees, while a step in the right direction, doesn't go far enough. "Ultimately management will need to go further," Hohn said, adding that the company's median salary of $300,000 should also be reduced.
At Salesforce, much of the criticism from investors has been towards high levels of stock based compensation and overpriced acquisitions, like their $28 billion buyout of Slack at the height of the COVID-19 pandemic. That's something that Elliott is likely to take aim at in its bid to help management stage a turnaround in the share price.
And while Peltz has been confrontational in his bid to spark a turnaround at Disney, some activists are taking a different approach.
Salesforce, for example, which also attracted Starboard Value as an investor last year, may see a less abrasive public campaign from that activist targeting its operations.
"We have developed a deep respect for [CEO Marc] Benioff and what he has built. We look forward to working constructively with Salesforce to realize the value befitting a company of its stature," Elliott managing partner Jesse Cohn said on Sunday.
According to data from Lazard, there has been a 39% increase in activist campaigns over the past year as hedge funds take advantage of sagging stock prices, even among companies that were once viewed as untouchable due to their high profile CEOs and long years of success.
Whether the activist campaigns succeed remains to be seen, but with some mega-cap tech stocks down more than 50% from their peaks, it would not be surprising to see more of these campaign waged over the management of the largest publicly traded firms.