The ongoing rise of shareholder activism could have negative implications for credit investors, warns Moody’s Investors Service.
In a new report, the rating agency indicates that there have been 54 cases of shareholder activism among North American non-financial companies in the first quarter of 2015, up from 43 cases during the same period in 2014. Last year was already a record year for activists, with 222 cases, Moody’s says.
And, it suggests that this continued increase in shareholder activism “could raise event risk for credit investors”. For instance, this could drive changes in strategic direction and/or financial priorities for target companies.
“Shareholder activism is rarely good news for credit investors, and we have seen an uptick this year,” said Christian Plath, vice president at Moody’s. “In many cases, shareholder activists pursue short-term initiatives like share buybacks or special dividends, which have negative implications for credit investors.”
Moody’s says that more than 40% of the companies that have been targeted by activist shareholders so far this year, were also targets in 2014, suggesting that activists are remaining persistent.
The technology sector has been the most prone to activists, Moody’s says, comprising 30% of North American companies that have been targeted since the start of 2015. Other highly targeted sectors include services, healthcare, and retail, it notes.
“In 2014, activist shareholders succeeded in challenging managements and boards at some of the largest US companies, pushing them to make sometimes transformational changes,” said Plath. “No company is immune — and in recent years, blue-chip firms like Apple, DuPont, PepsiCo and General Motors, among others, have become targets.”