Hostile Resistance to Activism | The Acquirer's Multiple®

During her recent interview with Tobias, Professor Nicole Boyson discussed Hostile Resistance to Activism. Here’s an excerpt from the interview:

Tobias: I remember in the heyday in the mid-2000s, there were a few articles that would talk about 27-year-old activists calling up pretty well-respected, established CEOs. And they might have even just been an analyst at a big firm, and they’d be telling them all the stuff they had to do. And the guy just says, “Yeah, you’re right.” And then, they hang up the phone and not do anything.

Nicole: I’m not done with you. Yeah, there’s certainly a credibility factor that matters. One of the other things I look at, in a different paper, but shows up in this one too, is the interaction between the activist and the target firm. I think that works super. Again, interesting because it’s stories, but you can see where an activist comes in, and I got this idea of reading some stuff by Matt Levine, my favorite blogger.

He was writing about poison pills being used against activists as opposed to being used against takeover sharks or whatever. Sure, activist sometimes take over firms, but the poison pill was a pretty aggressive way to say, “Hey activist, you own 5%. We’re not letting you go more than 10%.” We saw a handful of poison pills being put in, and my coauthor and I thought about, “Well, gosh, is this happening a lot. And if it does happen, what goes on in the rest of the campaign?”

We found– this is a paper called Hostile Resistance to Activism and we divided the resistance into a proxy fight or a poison pill, really hostile stuff versus oh, the company just made it a little harder for shareholders to meet, slightly more benign but still nasty, or they did nothing. We found that hedge fund activist, if the target fought back hard, and the activist didn’t counter fight back, that was like the worst of all possible outcomes. So, those just stagnated.

When we found the cases where the firm appeared to cooperate, those turned out okay. Or the cases where the firm got hostile and then the activist got hostile back, those turned out okay too. So, it was this idea of like, you go in, and it’s like a little bit of a crapshoot, like, “Is this guy going to go crazy trying to fight against me?” Or is he going to also say, like, “Hey, I agree that my governance is lousy, and we’re going to try to fix it.”

You can think about both. It’s like a personality, am I hostile or not? But also, we looked really carefully at these ideas of changes in governance and poison pills. And the poison pill thing to me, it’s a small sample, they don’t do it very often. But to me, if you are a target firm and you put up a poison pill against an activist, that is a pretty strong sign that you are not going to be a very friendly target.