As mentioned, the short-termist, profit-hungry attitude of some activist investors has led to them earning the moniker of “corporate raiders,” “greenmailers”, or “asset strippers.” Greenmail, by the way, is the practice of buying enough shares in a company to threaten a total hostile takeover and then forcing the firm to repurchase those shares at a premium. But activism can also engender broader positive impacts.

“A lot of people died fighting tyranny. The least I can do is vote against it.” Carl Icahn

Icahn’s words here reference the typical activist investing approach mentioned before: one which involves buying a large proportion of a company’s shares, using the resulting voting power to control the board of directors and/or appoint sympathetic people to it, and then trying to effect changes in the company that the activist believes will be positive for its share price. These can be good or bad for the company’s prospects, depending on whether the activist’s plans promise to create long-term value or just a short-term stock surge.

Examples of changes activist investors often seek to implement include replacing the company’s management team, selling off some of its assets, borrowing more money, splitting up business lines, and returning cash to shareholders. Icahn’s efforts on this last front even contributed to convincing tech giant Apple to increase its stock buybacks in 2015.

Apple’s buybacks have only increased in the intervening years

It’s not only by amassing shareholder votes or seats on the board that activists try to effect change. The war is frequently waged through high-profile media campaigns against a company’s management. Icahn, for example, often follows up his stake-taking by publishing open letters to firms’ directors and shareholders on his website and complaining loudly live on air. Sometimes this can turn ugly – like in Icahn’s epic on-screen altercation with fellow activist investor, Pershing Square Capital Management founder Bill Ackman. If you haven’t seen it already, we’d really recommend you check out what eventually became known as the “Battle of the Billionaires.” ⚡

The two activists fell out over nutrition company Herbalife. Ackman believed the multi-level marketing company was a fraud and consequently “shorted” its stock – basically betting that Herbalife’s share price would fall. Icahn disagreed, instead snapping up large chunks of the company’s stock. As he said at the time: “Our investment in Herbalife is a quintessential example of our activist investment strategy. In late 2012 and early 2013, the stock was meaningfully out of favor for a number of reasons. We studied the business and assessed the risks. At that time, we concluded that the risk/reward ratio was very favorable. We amassed a large position and joined the board. Our directors worked closely with management to stabilize the company.” Icahn would eventually win the argument – as well as a billion dollars in profit. 🤑