February 15, 2015 — Activist investors suddenly have taken a keen interest in automotive-related companies. Is that good news for the targeted firms? It depends on who you ask.
CDK Global, Autobytel, and now, General Motors, are the recent targets of activist investors. It’s a relatively new phenomenon in automotive retail. Automotive manufacturing suppliers have dealt with them for years while GM had a run in with Kirk Kerkorian and his sidekick, the late Jerry York, nearly 10 years ago.
The Banks Report recently has provided analysis regarding what likely will be GM and CDK’s upcoming “battles” with their investors —
(Meanwhile, Gannett Cos. is at the beginning of what could be an intense battle with Carl Icahn. It’s a battle that will have a big say in the future of Cars.com.)
Usually, it’s not good news for the management team when they receive the call from the likes of Bill Ackman or Carl Icahn, or other savvy and experienced activist investors. It means having to get up to speed politically to make sure current board members are on board and are allies. It also means executives become more focused protecting their jobs than managing their companies — although, effective management is a good defense, and good executives realize this.
The Economist magazine published an article last week outlining what companies being targeted by activists can expect. It’s a good read that lays out the typical activist’s gameplan: Shareholder Activism — Capitalism’s Unlikely Heroes.
Although, activists can make life hell for the management team in the short term, their involvement historically seems to be overall positive for the companies they target, according to The Economist.
In another article that was published today, the magazine writes the following:
“But recent academic studies suggest that, by and large, activists are good for companies. An analysis of around 2,000 interventions in America during 1994-2007 found not only that the share prices and operating performance of the firms involved improved over the five years after the intervention, but also that the improvement was greatest towards the end of the five-year period. The firms activists targeted tended to be underperforming relative to their industry.”
For management teams, it’s probably not good news, but for long term investors, maybe activists aren’t so bad.