Elon Musk blazes trail for new-model investor activism

Shareholder activism is on the rise. And guess what? Elon Musk — loudmouth proponent of electric cars, gas-guzzling rockets and multiple other contradictions — is its new protagonist.

Musk’s much-discussed bid for Twitter, the social media platform he has used for all his choice pronouncements, has superseded what briefly looked like a more normal activist investment in line with the Elliotts and Icahns of the world. On April 4, it was disclosed that the maverick entrepreneur had become Twitter’s biggest shareholder, with a 9 per cent stake. Within days he had been offered, and accepted, a seat on the board with an apparent mission to play the role of an outside agitator.

Traditional moulds, of course, are not for Musk. And befitting an iconoclast in a hurry, he soon changed his mind, deciding not to join the board after all, instead accumulating the financial backing to launch a full-blown $43bn bid for Twitter. A deal has now been done, though how the tale ends is anyone’s guess, given uncertainty over the solidity of the funding and the history of Musk’s clashes with regulators, particularly the Securities and Exchange Commission, which has jurisdiction over acquisitions.

But the case has highlighted with a uniquely Muskish fluorescence that underperforming companies are vulnerable to activists of one kind or another (Twitter’s share price in March was down more than 50 per cent from its 12-month high).

As economic pressures, surging inflation and rising interest rates threaten stock market valuations, there is an added incentive for investors to be more interventionist in an effort to outperform a potential downward trend in average share prices.

At the same time, another motive is at work: mainstream active investors are turning more activist, as they finally feel the pressure to distinguish their performance from cheap index-hugging passive funds. Lately, a number of groups, such as the UK’s abrdn, have tried to push upmarket into higher-fee, higher-performance fund models.

Sure enough, in the first three months of the year, there were 73 activist campaigns launched globally, a quarterly record according to a new review by Lazard. In Europe, where stock markets have been far less frothy than in the US, activists’ search for undervalued investments has been particularly keen. There were 15 new campaigns launched in the first quarter, up 50 per cent on a year earlier.

In part, this reflects the growing preparedness of established names to take vocal positions against company managements on specific issues. Abrdn has been among the activists at Vodafone, for example, joining established campaigner Cevian in urging drastic restructuring and a boardroom overhaul.

There has even been activism from the sovereign wealth fund community, traditionally a rarity. Temasek last month is reported to have pushed for Bayer chief executive Werner Baumann to leave the German healthcare group.

Another trend, evident in Italy, has seen domestic rivalries play out — par for the course in some sense, but clearly driven now by arguments about stock market underperformance. At Generali, this week’s annual meeting will witness a showdown between the Italian insurer’s board backed by leading investor Mediobanca and a rival shareholder contingent led by business tycoons Leonardo Del Vecchio and Francesco Caltagirone. Both sides have manoeuvred to maximise the weight of their shareholdings — following a pattern more associated with activist hedge funds.

Activist campaigns also have become particularly influenced by the ESG agenda, with activists driving companies to pursue more progressive environmental, social and governance policies. Carl Icahn, for example, has targeted McDonald’s over how its suppliers treat pigs. Hedge funds Snowcap and Clearway have pushed, respectively, for a shift away from coal and a move out of Russia, at energy groups AGL and Total.

Lazard data show that the number of annual meeting proposals related to environment and social issues in the first quarter of the year (438) almost equalled the record full-year number logged last year.

Campaigns that push for a merger or acquisition have declined (from the 41 per cent average of the past four years) to just 30 per cent, with board change now the aim in 40 per cent of cases, up from 31 per cent. As usual, then, in his take-private plan for Twitter, and his spurning of a board seat, Elon Musk is fighting against the tide.

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