Activist Investing

Professor: Jonathan Litt

TF: Kyle Amelio
Course Overview
• This course will explore the world of activist investing through analysis of
case studies, conversations with guest speakers, and the discussion of
current events
• On a weekly basis, you will be expected to complete a set of assigned
readings and submit a one page summary to Brightspace on the
Sunday before class by 11:59pm
• The final deliverable will be group project where you will prepare
your own activist pitch
• In this class, we will look through the lens of the investors in campaigns
• Key points of focus will include identifying reasons for
underperformance, the most common demands of activist investors,
and the tactics used to achieve their goals
What Is Activist Investing?
• On a high level, an activist investor takes a minority stake in a company to
bring about change with the intent to add value for shareholders
• It does not need to be a controlling / majority stake, as activists will
seek support from other shareholders if the company is not initially
cooperative
• The demands of activist investors are tailored to each situation.
• Throughout this class, you will continue to develop an improved
understanding of activist investing through readings and discussion with
industry professionals
Types Of Activist Investing
• Activist campaigns can take many forms based on the problem(s) facing the
target and the solutions the investor believes are necessary to create value
• Types of activist campaigns include, but are not limited to:
• Friendly
• Constructivist
• M&A
• Block Deal
• Improve Governance
• ESG
• Operational Turnaround
• Spin-off or Sale of Divisions
• Short
Types Of Shareholders
• Activists will often look to gain support from other investors in order to
influence (or force) the company to take action
• This means interacting with investors with different interests and levels of
engagement
• These investors can include:
• Index Funds
• Active Managers
• Retail Investors
• Arbs (Seeking to take advantage of an arbitrage opportunity)
• Wolf Packs (Groups of activist investors)
What Do Settlements Look Like?
• Since the demands of activist investors vary widely based on the
circumstances of the target, settlements can take a number of different
forms
• Some settlements include:
• Adding new members to the board (activist or other)
• Creating new committees
• An investor day
• Agreement to explore strategic alternatives
• Making an offer
Identifying Good Activist Investments
• Activist investments are about unlocking value for shareholders, so core to
the investment is believing the true valuation of the business is well above
its current enterprise value
• A sum of the parts valuation shows that the pieces are worth more
than the whole
• Fundamentals are moving in the right direction for the business
• Poor trailing returns on based on 1, 3, and 5 year periods
• These numbers should be poor in both absolute terms and relative to
proxy peers
• You can shrink the proxy peers to reflect actual peers if you feel the
companies listed are not reflective of actual peer group
• CEO has a history of making poor decisions (and finding a way to convey /
illustrate this)
… There Also Needs To Be A Fix
• There are various proposed solutions that can act as a fix, depending on
what is wrong with the company. These can include:
• Selling the company at a valuation which is more reflective of its true
value
• Replacing the management team with one that will be more capable
of making sound decisions and capturing value for shareholders
• Replacing the board to improve governance / oversight
• Selling a division that is hurting the company’s overall valuation or is
not being fully valued as part of the whole
• Suggest a turnaround strategy if the business is underperforming
Well-Known Activist Investors (Funds)
Carl Icahn (Icahn Enterprises) Jeffrey Smith (Starboard Value)

Bill Ackman (Pershing Square) Dan Loeb (Third Point)

Paul Singer (Elliott) Mason Morfit (ValueAct)

Barry Rosenstein (Jana) Nelson Peltz (Trian)

Current Major Activist Campaigns
Elliott reached a settlement with Cardinal Health on 9/6/22
to add four members to its board, have two existing members
Cardinal Health /
resign following the next annual meeting, and form a
Elliott
committee to perform a review of its portfolio, operations,
capital allocation, and strategy

While the process is still in early stages, Starboard Value has

Wix.com / built a stake in Wix as of 9/16/22 and is holding discussions
Starboard Value with management on how to improve margins and accelerate
the transition to profitability
Key Terms (Proxy / Advisors)
Proxy advisory firms that advise institutional shareholders on how
ISS & Glass Lewis
to vote

A proxy card that includes the names of all registrant and

Universal Proxy Card
dissident nominees

Boards with directors who serve terms of various lengths. Makes it

Staggered Boards
harder to get control of a company

Requires more than a simple majority of shareholders to approve

Supermajority Voting
certain corporate actions. Makes activism more challenging

Board Tenure The length of time directors have served on a board

Key Terms (Proxy / Advisors)
Nominee An individual nominated to join the board of a company

Smaller groups who advise the board on specific areas (audit,

Committees
compensation, etc.). They can consist of directors and non-directors
Will usually serve as the contact point for every board member on
Lead Director /
board issues, sets goals and objectives for the board, and ensures that
Chairman
all board members are involved in committee activities
The identification code of an aircraft which enables the tracking of
Tail Numbers
corporate jets

Connections Among Could indicate that the board is packed with allies who are less likely
Board Members to be critical of management’s decisions or performance
Activist Case Walk Through (ACC)
• ACC Slides
Grading Breakdown
Section % of Total

Participation and Attendance 20%

Weekly Readings and Case Briefs 30%

Final Project 50%

Attendance / Participation (20%)
• In-person attendance is mandatory. We have a limited time together and
much of what you take away from this class will come from class discussion
• If you are unable to attend class for an excusable reason (family
obligation, sickness with a doctor’s note, etc.), send an email to me
and cc the TF as soon as you are aware you will be absent
• Class Participation is required and a key part of your experience in this class
• You are expected to participate actively in class discussions and ask
questions when we host guest speakers
Course Readings (30%)
• It is very important that you complete the readings in this course, as they
create a basis for class discussion
• Each week, these readings that will help you familiarize yourselves
with landmark activist campaigns and current events. These will
consist of case studies and news articles
• On weeks when we have speakers, there will be additional readings in
advance of those speakers to ensure we have engaging discussion
• Weekly readings deliverable
• Each week, you will submit one page of notes on the readings (bullet
points, 12pt Times New Roman, single-spaced) and three questions
for the speaker (when applicable)
• Submit by 11:59pm on the Sunday before class
Project (50%)
• The project will require you, in teams of 4, to put together an activist deck
for a company of your choosing
• You will see various examples of these decks throughout the class, and
this website can also act as a resource
• By 11:59pm on Sunday, please have a team and company chosen. You will
have 20 minutes at the end of this class to get to know each other and begin
finding groups
• A spreadsheet is on Brightspace for you to fill out with your team’s
information. Members of the class without teams by the deadline will
randomly assigned to a group
• When choosing a company, look for signs of underperformance vs peers,
as it will help you make an effective argument
Class Schedule
Due Required Readings for Class Required Readings for Speakers

9/20/22 Today NA

Elliott / Hess Presentation Elliott / Sempra Presentation

9/27/22
Elliott / Hess NYT Elliott / Arconic Presentation

Trian / P&G Presentation

Trian / P&G Harvard Case Study
10/4/22 L&B / ACC Presentation NA
L&B / ACC Press Release
ACC Sale To Blackstone WSJ
Class Schedule
Due Required Readings for Class Required Readings for Speakers

L&B / Taubman Presentation (1)

L&B / Taubman Presentation (Final)
10/10/22 NA
Starboard Value / Darden Presentation
Starboard Value / Darden WSJ

Icahn / Southwest Gas Letters (read all

letters to Southwest Gas Starting from
10/18/22 NA
October 5th 2021)
Icahn / Southwest Gas Settlement

10/25/22 No Readings – Final Presentations Due NA