Long-term Activism Can Happen [Study]

As part of the weekend feature for Activist Strategy this past weekend we took to task the passive investors for their relative uninterest in supporting activists in proxy battles, which lies in the fact that they win regardless.

However, as a follow up to that, here’s a look at the Investment Programs and Governance study on the pension fund, State Board of Administration, down in Florida. The study is called Valuing the Vote.

It's the result a look at how the pension fund voted in proxy battles and the ultimate track record if they voted for the winner or loser of the proxy battle. It covers 107 proxy battles covering 2006 to 2014.

Key takeaways:

  1. SBA supported activists or dissidents in 65% of the contests. SBA supported the winning side 60% of the time. The aggregate of SBA’s investment in companies facing proxy battles was up over $570 million in the five years after the contest. The basic takeaway here is that proxy battles are generally a good thing.
  2. Digging deeper into the above bullet, when the SBA supported management and management won all the seats, its economic portfolio gain was $137 million. When it backed the dissident but management won all the seats it saw an aggregate loss of $259 million.
  3. SBA found that the company's’ share price rose an average gain of 67% in the five-year period after the start of an activist campaign. The outcomes of proxy fights have an impact on long-term value.

When SBA backed the winning side, whether it be management or investors, its returns were better. Makes sense intuitively, where when you back the winning team you’ll usually see better results. But the bigger theme, I think, is that proxy contests are healthy. Keeps management honest and aligning interests. Basically, this is a primer to do your own due diligence and if your side loses, cut your losses. Paging Nelson Peltz.