Activist campaigns targeting firms of this size and caliber are uncommon, but their struggling share price has painted a target on management’s back. Shares of Salesforce have dropped more than 50% from their peak, while Disney and Alphabet are down 49% and 35% from their peaks, respectively. The Nasdaq 100 meanwhile is down 30% from its peak.
‘Big Short’ investor Michael Burry warned stocks would crash and rallies wouldn’t last. Here are 6 of his key tweets in 2022, and what they meant.
The pandemic crash was just the start
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Stocks are set to tumble a lot further
It’s those steep stock price declines that activist investors are using as a wedge in an attempt to win over shareholders and pressure management teams into gaining board seats or other concessions.
At a glance, the campaigns seem to be working, as both Salesforce and Disney saw their stock prices move higher following the news of the activist investor campaigns.
But in reality, given that much of the year-long stock price slump was driven by fast-rising interest rates and a flight to non-tech quality among investors, the activist investors still face an uphill battle in winning over shareholders and management teams.
Much of what these activist investors want from management teams is more discipline on spending and employee headcounts in order to drive a rebound in profit margins, which should ultimately help stage a recovery in the stock price.
Hohn of TCI told Alphabet in a letter last week that its recent reduction of 12,000 employees, while a step in the right direction, doesn’t go far enough. “Ultimately management will need to go further,” Hohn said, adding that the company’s median salary of $300,000 should also be reduced.
At Salesforce, much of the criticism from investors has been towards high levels of stock based compensation and overpriced acquisitions, like their $28 billion buyout of Slack at the height of the COVID-19 pandemic. That’s something that Elliott is likely to take aim at in its bid to help management stage a turnaround in the share price.
And while Peltz has been confrontational in his bid to spark a turnaround at Disney, some activists are taking a different approach.
“We have developed a deep respect for [CEO Marc] Benioff and what he has built. We look forward to working constructively with Salesforce to realize the value befitting a company of its stature,” Elliott managing partner Jesse Cohn said on Sunday.
According to data from Lazard, there has been a 39% increase in activist campaigns over the past year as hedge funds take advantage of sagging stock prices, even among companies that were once viewed as untouchable due to their high profile CEOs and long years of success.
Whether the activist campaigns succeed remains to be seen, but with some mega-cap tech stocks down more than 50% from their peaks, it would not be surprising to see more of these campaign waged over the management of the largest publicly traded firms.