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Big business at risk as shareholder activism booms

Sunday, 10 Nov 2013 | 7:34 PM ET
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Activist shareholders have ramped up the pressure on companies over the last three years, according to a new report, leaving few big companies immune to their advances.

There were over 320 activist interventions - when a shareholder uses their stake in a company to put pressure on management – across the world in the first nine months of 2013, research by law firm Linklaters found. This marked an 88 percent rise on the same period in 2010.

Larger businesses – with market capitalizations of more than $2 billion – were now a serious target, the report said, following a 129 percent rise in activist investments at these mid- and large-cap companies.

The research, published Monday, comes amid what some have dubbed the "golden era of activist investors."

(Read more: Welcome to the golden age of activist investors)

High profile activist investors include Carl Icahn (pushing for an Apple share buyback), Dan Loeb (who has put pressure on Sotheby's CEO to leave) and Bill Ackman (who called Herbalife's business model a "pyramid scheme.")

Activist shareholders' actions are booming
Monday, 11 Nov 2013 | 5:40 AM ET
Charles Jacobs, partner at Linklaters, discusses the sharp rise in activist shareholders actions since 2010 and how it can be a challenge for management.

Given the prominence of Icahn and Loeb's tech investments, it may come as no surprise that the type of companies targeted by activist investors has also changed significantly over the past three years, according to Linklaters' research.

In 2010, the majority of activist activity was in the financial sector – the focus of 36 percent of interventions – with only 16 percent of activism taking place at technology firms.

(View slideshow: Activist investors return)

By contrast, in 2013 some 22 percent of activity was focused in the tech sector, with just 15 percent of actions occurring at financial companies.

Charles Jacobs, a London partner at Linklaters, said that the rise in shareholder activism was impacting boardrooms – especially in larger companies.

"Across all industries, few large companies are now immune to the advances of activist shareholders," he said in a statement.

"Big companies are typically well equipped to deal with takeover approaches, but many need to be better prepared than ever to respond when activist shareholders appear on their share register."

The U.S. still accounts for the vast majority of activist activity, Linklaters found, but activism is growing in Europe, with investors increasing their activity in the region by 62 percent since 2010.

(Read more: When tweets move markets: Icahn and Apple)

The vast majority of activists sought changes to board composition, according to the research. This outnumbered those investors pushing for share buybacks by more than three-to-one in the first nine months of 2013.

"With the activists' focus on using boardroom change to further their agenda, no management team can afford to mishandle an approach," Jacobs added.

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