Demystifying Activist Investors

Business newswire Bloomberg ran an article recently about how investor activism might have gone too far in the US’s corporate world. The article claims that activist investors now wield so much power that they can influence companies’ management to help them push up share prices.

With their apparent ability to move the markets and shake up the corporate climate, who exactly are activist investors and do we see them in the local market?

Activist investors 

An activist investor is generally known as an individual (or organisation) who buys up a large amount of a publicly-listed company’s shares with the objective of using his large stake as an influence to push through major changes within the company – or in other words, they are investors who wish to be the catalyst themselves in helping a company unlock or create value. And although famous activist investors in the West like Carl Icahn and Bill Ackman are also hedge fund managers themselves, the ‘activist’ tag is not used exclusively to describe hedge fund managers – there are hedge fund managers who are perfectly content to be a silent shareholder who’s willing to let a company’s management run the show.

In any case, an activist investor’s aims need not always be about investing in a company in an attempt to improve its fortunes. An investor can still be an activist by being a catalyst to cause declining share prices. Such activists tend to short a company’s shares (i.e. trying to profit from falling prices) and focus on exposing problems the company might be facing in an attempt to catalyse a drop in its share price.

Singapore’s activists

The Singapore stock market is no stranger to investment activism. Thailand-based billionaire Mr. Charoen Sirivadhanabhakdi, who’s the chairman of Thai Beverage Public Company (SGX: Y92), can be considered as an activist investor when he used Thai Beverage and his private investment vehicle, TCC Assets, to  buy over Fraser & Neave (SGX: F99) in 2012. Sirivadhanabhakdi subsequently implemented a huge restructuring plan for the company in his attempt to be the catalyst to unlock shareholder value. Fraser & Neave has since sold off its main brewery business and spun off its property business into another listed entity, Fraser Centrepoint (SGX: TQ5).

Publicly-listed companies can themselves be activist investors. A good example would be G.K. Goh Holdings (SGX: G41), an investment holding company. It might not be too well known amongst investors, but it has been making huge investments in other publicly-listed companies in an attempt to influence change in them. Some of its notable investments include Boardroom (SGX: B10) and euNetworks Group (SGX: 5VT). G.K. Goh’s modus operandi typically involves first investing a large stake into a company and then getting its own personnel onto the board of directors of its investees.. From there, G.K.Goh will then try to work with the investees’ management to improve their company and unlock, create, or extract value for shareholders. Earlier this year, G.K. Goh offered to take Boardroom private at S$0.575 per share and the deal’s still ongoing.

Foolish Bottom Line

Passive investors are generally happy to let a company’s management run the show while waiting for either: 1) the business to grow, or 2) for catalysts (i.e. certain news or events) to happen such that a company’s share price can move. Activist investors (who are also long-term investors who study the fundamentals of a business) on the other hand, basically see themselves as the catalyst instead of waiting for one to appear.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Fraser Centrepoint Ltd