In a study of US companies, the 29 instances where boards had reached a settlement agreement since 2010 produced an average yearly share price increase of 60 per cent, outperforming the Standard & Poor’s index by 42 per cent. In contrast, companies that did not agree to shareholder demands grew by a yearly average of 15 per cent, just 1.5 per cent higher than the S&P grew over comparable periods, according to the Activist Insight data.
A recent case in point is US office product supplier Office Depot, where Starboard Value was looking for board representation.
The activist investor was offered board seats before the proxy contest had run its course and the company’s share price rose by 67 per cent since Starboard first declared its intentions.
“Unfortunately, it often needs a long proxy fight for board and activist to see eye-to-eye,” said Activist Insight’s Josh Black.
“When activists withdraw their board nominations, it usually suggests they’ve lost all hope of creating value.”