Activist investing has never been polite. But their battles could get even uglier in 2015 as hedge funds continue their trend toward piling into the same stocks.
So-called activists, who push for change at undervalued companies, have been crowding into many of the same companies in recent years, including gadget-maker Apple, auction house Sotheby’s, car rental company Hertz and restaurant operator Darden Restaurants.
It’s a trend expected to intensify in 2015 as stock prices rise, which could narrow value-driven investing opportunities, experts said.
That will lead to louder campaigns against companies, which could increase their chances of success. It could also open the door to infighting.
“There are too many players and not enough companies,” says Andrew Freedman, an attorney with Olshan Frome Wolosky who works with activist investors in New York. “With that comes the potential to butt heads on the same positions. It’s bound to happen.”
Freedman cited the now infamous brawl between billionaire Carl Icahn and hedge fund manager Bill Ackman over energy drink company Herbalife. Technically, Ackman is not doing shareholder activism in Herbalife since he’s pushing for the stock to decline rather than rise. Still, it’s an example of how too many outspoken and aggressive hedge fund managers in the same place can lead to fireworks, experts say.
Medical technology company ConMed also got caught in an activist brawl in 2014. Two days after the board announced plans to settle an impending board battle with New York-based hedge fund Coppersmith Capital, activist investor Voce Capital, which was also seeking board seats, cried foul in a press release that also attacked Coppersmith’s nominees.
Bruce Goldfarb, who helps activists run campaigns for board seats, says disagreements are already happening behind the scenes — thanks to hedge-fund crowding.
“What we see is that different investors do disagree at times on strategy and approach,” says Goldfarb, CEO of Okapi Partners. “But most reasonable people will agree to disagree or find a way.”
Indeed, when investors can agree on a strategy, or agree to take the backseat to another investor’s plan of action, they may be increasing their chances of success.