Tycoons make billions demanding change in UK companies: Should YOU make investments like an activist?

It was the news that lit up BP’s languishing share price. The oil giant leapt 8 per cent last week after it emerged that aggressive US investor Elliott Investment Management had built a near 5 per cent stake worth almost £4 billion in BP, fuelling hopes of a radical shake-up to revive its stock market fortunes.

News of Elliott’s swoop came as BP revealed profits had slumped to their lowest level since the pandemic, leading under-fire boss Murray Auchincloss to pledge a ‘new direction’ for the firm.

More details are expected on February 26 when BP updates investors amid vows to ‘fundamentally reset’ its green strategy, which is likely to see a renewed focus on fossil fuel production at the expense of renewable energy.

Elliott has yet to spell out what it wants from BP. But its raid is only the latest in a long line of attacks from activist investors on UK companies.

Some might see the term ‘activist’, which is usually associated with those campaigning for what they see as a worthy cause, as a misnomer. Activist investors take stakes in what they see as underperforming companies in order to agitate for change, which they believe will drive up the share price.

The UK has become a fertile hunting ground for the likes of Elliott.

Activists targeted 59 London-listed companies last year – by far the highest number in Europe and the fourth worldwide – according to business consultants Alvarez & Marsal (A&M).

The hit-list includes hip and knee replacement specialist Smith & Nephew, where Swedish activist Cevian is circling, mining giant Rio Tinto, consumer goods group Reckitt Benckiser and bootmaker Dr Martens.

There have also been high-profile activist campaigns at Magnum ice-cream maker Unilever, Barclays and drugs giant GSK. So can private investors cash in by buying shares in UK companies targeted by activists?

Based on A&M data from the six years to 2023 showing that targeted firms’ share prices outperformed the broader stock market by 9.2 percentage points, it might seem a good plan.

And A&M reckons activists could take aim at another 49 UK firms this year, so there is plenty of opportunity.

That seems logical: if activists can induce bosses to make changes that unlock value, they and other shareholders should benefit. But investors should be aware that history is not necessarily a guide to the future.

And the activists might be wrong. For instance, a company’s management might not be as useless as it looks, or perhaps it has performed well but the share price is down for reasons beyond their control. Activists may also have a more short term view than the board and other investors. And they certainly don’t always succeed. We are not giving recommendations, but here is food for thought:

WHO ARE THE ACTIVISTS?

Elliott is perhaps the most notorious of the activist investors. Founded by now

80-year-old billionaire US financier Paul Singer – described by business magazine Fortune as one of the ‘smartest and toughest money managers’ on Wall Street – Elliott made its name by buying the bonds, or IOUs, of near-bankrupt countries – and then chasing them for their unpaid debts.

The lengths it is prepared to go as a creditor to get its money back have become the stuff of folklore. Elliott once went as far as seizing a ship in an African port belonging to the Argentine navy in 2012 after the government in Buenos Aires defaulted on its debt repayments.

As its tilt at BP shows, it is not afraid to take on big companies too. In 2021 it went after GSK boss Emma Walmsley, Britain’s highest-paid female chief executive, arguing that under her leadership the drugmaker had ‘lost its way’ following ‘years of undermanagement’.

Other investors rallied around Walmsley and the shares rebounded, easing pressure on her. But GSK’s share price has, slipped back to where it was almost four years ago. It’s a pattern often repeated. The target’s share price initially bounces on hopes value will be unlocked only for it to drift lower over time.

Elliott, which manages $70 billion (£55 billion) of funds, also has a stake in mining giant Anglo American and is playing a key role in the future of Thames Water, the stricken supplier to 16 million customers in London and the Thames Valley. Singer’s son Gordon runs Elliott’s London office. Another feared activist is Nelson Peltz, the US hedge fund manager whose daughter Nicola married Brooklyn Beckham, son of David and Victoria. Apart from that, Peltz is best-known in UK corporate circles for targeting Unilever. 

He snapped up a stake in the Dove soap and Marmite owner in 2022 through his Trian investment fund and won a seat on the board. He has backed new chief executive Hein Schumacher, who is selling off Unilever’s ice-cream arm. It’s been a profitable trade for Trian, which sold a £181million stake in Unilever last year. The shares are up 30 per cent since Peltz made his pounce public.

Unhappily for Chancellor Rachel Reeves, UK investors and the London stock market, Unilever has chosen to list the ice-cream business in Amsterdam, not the City.

TOP TARGETS

SMITHS GROUP

There have been repeated calls for the industrial conglomerate to break itself up. Smiths sold its medical arm two years ago, and last month said it would spin off its detection division, which makes airport baggage screening technology. It is also divesting itself of its electronic components business following pressure from activist investor Engine Capital. Shares shot up on the announcement and have risen more than 20 per cent in the past month.

ITV 

Experts say ITV Studios, which makes and sells programmes, may be worth more than the stock market value of the entire group.

‘Content creation is big business and ITV’s studios arm has a solid track record of producing shows that bring in a large audience,’ says Dan Coatsworth of investment platform AJ Bell.

‘A buyer such as Netflix could access these skills and a rich back catalogue of content,’ he added. ITV’s shares are down 48 per cent over the past five years, making it even more vulnerable to a takeover. Asset manager Redwheel is already the second largest investor. It has a 6 per cent stake and takes an activist approach, as does fellow investor Silchester, with its 5.4 per cent.

SAINSBURY’S 

New York-based Pzena Investment Managers, which specialises in identifying undervalued companies, has a 5 per cent holding in Sainsbury’s.

Coatsworth argues that management should focus efforts on the cut-throat food and drink sector, rather than be sidetracked by general merchandise retailing, an issue it’s already addressing.

‘The grocer has adopted a food-first strategy in recent years and it’s going well,’ he says.

He notes the recent sale of its banking unit shows Sainsbury’s ‘isn’t shy about making bold decisions and focusing on what it does best’. Next to go could be Argos.

‘Argos has been stuck in the mud for some time and a lacklustre performance strengthens the case for Sainsbury’s cutting ties with the business,’ Coatsworth says.

LIONTRUST

AJ Bell believes this fund manager could be a target, following an 82 per cent share price decline since September 2021. This has seen Liontrust go from being a FTSE-250 stock to languishing in small cap territory.

‘Previously well-respected in the asset management world, the company is ripe for activist investor involvement,’ says Coatsworth. ‘The obvious strategy would be to push for consolidation with a rival – either a merger or soliciting a takeover.’

CRODA 

The chemicals group is dangerously close to the bottom of the FTSE 100, having lost £10 billion in value since December 2021.

The shares have been hit by falling demand for lipids used in Covid vaccines as well as weaker demand across crop protection markets.

‘Shareholders can only be patient for so long and they might welcome the appearance of an activist who might push for the business to sell assets, install new leadership and focus on fewer areas,’ says Coatsworth.

B&M 

AJ Bell experts say the market has lost faith in discount retailer B&M’s strategy. The shares have halved in value since December 2023 amid a slowdown in growth.

The discount retail market is highly competitive and B&M may need to do something different to regain investor support.

‘Three members of the Arora family drove the company to new levels,’ notes Coatsworth of the founding family, ‘but one by one, the brothers have stepped away from the business. It’s a perfect time for an activist to step in and potentially push for a sale of the group or bring in a different chief executive who will take a fresh approach and put B&M on a stronger path for the future.’