Sliding into takeovers: a new sport for activist investors

The court ruling that SABMiller’s shareholders should be divided into two groups when voting on AB-InBev’s takeover offer on 28 September 2016 was hailed by some as a victory for small shareholders. A victory, really?

Who are those “small shareholders” who had made such a stink that the offer had short-shifted them because their pay-out plummeted in relation to larger investors after the pound fell following Britain’s vote to leave the European Union? Step forward, Elliott Capital Advisors and TCI Fund Management.

They are best described as activist investors. Once called “corporate raiders,” activist investors have successfully rebranded themselves as “defenders of shareholder value.”

Now there are activist investors and activist investors. There are those who purchase large numbers of a public company’s shares and try to obtain seats on the board with the goal of effecting a major change in the company, especially if they think the company is mismanaged, has excessive costs, or has another problem that the activist investors believe they can fix to make the company more valuable.

And there are those who only buy stakes in a company to slide into its takeover in order to extract another premium on the offer. In fact, they are only after a quick buck. Usually their campaigns are successful because no one will want to see a deal fail that has progressed far, like AB-InBev’s takeover of SABMiller.

This sort of campaign is on the rise according to research by JP Morgan released in August 2016.

Not wanting a public spat, AB-InBev raised its cash offer by GBP 1 pound per share in July 2016. The increase may be modest but it will have to be paid for by someone, most likely employees, suppliers or customers.