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Lazard's Quarterly Review of Shareholder Activism – Q1 2020

Apr 16 2020

Lazard's quarterly review on shareholder activism compiles and analyzes data on key activism trends globally.

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Observations on the impact of the public health crisis on the activism environment include:

 New campaign activity

Q1 2020 Campaign Activity and capital deployment

Q1 2020 Global Activism Activity

Prior to the public health crisis, global activism activity in 2020 was off to a strong start with 42 campaigns initiated at 42 companies and total capital deployed of $13.1bn in January and February

  • The surge in January and February was driven by Europe, which experienced record activity in terms of campaign initiations and capital deployed
  • Local activists are increasingly initiating campaigns in Europe, accounting for 71% of activity in Q1 2020, compared with 58% in 2019

Activity in Europe

  • Since the outbreak in March, global activism activity significantly slowed by 38% month-over-month relative to February 2020 and 27% year-over-year relative to March 2019

        -    March campaign initiation was the slowest since 2013 and capital deployed was the lowest March since 2016

        -    Dampened activity in March has been consistent across the US, Europe and APAC

  • Drop off in activity was especially apparent on a weekly basis with average weekly campaign initiations falling from ~7 in February to ~4 in March and average weekly capital deployed of ~$2.8bn in February falling to ~$0.3bn in March

Impact on Existing Campaigns

  • Some activists have taken advantage of market dislocation by ratcheting up pressure and/or opportunistically increasing positions

Impact on the Activism Landscape

Q1 2020 M&A

  • As corporate behavior and priorities change in this new market paradigm, so too will activists’ ability to publicly agitate for change
  • Overall near-term activity likely to remain subdued as activists face ongoing market volatility, uncertainty related to the duration and severity of the crisis as well as the risk of being criticized as opportunistic and self-serving
  • With M&A activity sinking to multi-year lows and corporations fighting to preserve liquidity, activists are losing arrows in their quiver
  • Notable activists such as Icahn and Starboard have maintained their heightened level of activity amid the public health crisis (e.g., Icahn / Occidental, Starboard / Commvault)
  • Expect only the most sophisticated and well-capitalized activist firms to emerge from the crisis relatively unscathed as smaller firms stand subject to increasing outflows
  • While activists will face additional hurdles following the public health crisis (increased poison pill activity, government equity stakes), expect activity to pick up meaningfully post the public health crisis

Implications for ESG and Shareholder Engagement

  • Large index funds have bolstered sustainability expectations and provided more specificity on how companies should report and respond, noting that progress should not be curtailed despite the pandemic
  • In a time of crisis, where governance shortcomings are likely to be exposed, investors will be looking to understand what actions companies have taken in response to the pandemic, particularly as it relates to human capital management, executive compensation, and business strategy
  • Despite the market chaos, ESG and sustainability-oriented funds outperformed conventional funds globally in Q1

        - Strong Q1 performance is in contradiction to recent observations which label sustainability as a “luxury good”

 

 

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