Dive Brief:
- The Wall Street Journal conducted a review of companies and changes they experienced following intervention from activist investors, which found that "shares of large companies confronted by activists are more likely to outperform stocks among their industry peers than they are to underperform."
- The differential wasn't huge, however. A little more than half of the campaigns reviewed offered better shareholder returns after the activist went public about his or her involvement, while the median campaign improved by less than five percentage points.
- "At the same time, companies in the study slightly underperformed industry peers in terms of growth in earnings and slightly beat them on profit margins. As for capital spending as a percent of operating cash flow—seen as a measure of reinvestment—of the 48 companies in the study with good data for that measure, 25 raised spending or left it at the same level, while 23 lowered it," The Wall Street Journal reported.
Dive Insight:
"The resulting data bolster the increasingly popular conclusion that the best corporate response to activism isn’t for a board or chief executive to reactively shun an activist, or to completely acquiesce to any demands. Instead, companies may be better off analyzing each proposal, and the track record of the activist making it, some advisers say," according to The Wall Street Journal.
At Fortune’s Most Powerful Women summit, Mondelez CEO Irene Rosenfeld expanded on the company's relationship with activist investors. She described her call to add Trian Fund Management's Nelson Peltz to the board as one of her most difficult and important decisions. She described him as "highly constructive."
Rosenfeld also said she believed the company was being targeted by activist investors simply because it's a good investment. That includes Bill Ackman, with his 7.5% stake announced earlier this year. Ackman, along with Peltz, has urged Mondelez to cut costs, which Rosenfeld pointed out the company has done in recent years, but investors feel the company needs to do more. At the summit, Rosenfeld also confirmed Mondelez's growth strategy, which includes a focus on e-commerce.
When it comes to activist investing, world-renowned billionaire investor Warren Buffet says there's "zero" chance he'd ever pursue that type of investing himself. "Buffett said that activism is a profitable and 'salable form,' which happens to be attracting big money right now. But it’s spurred a wave of activism that may have gone about as far as it can go," Fortune reported.