On Tuesday, activist investor Starboard Value revealed a significant stake in Salesforce, sending the company’s stock climbing more than 7%. A hedge fund founded in 2002 by Jeffrey Smith and Mark Mitchell, Starboard has a history of affecting change at major companies, spurring the spinning off of media startup Patch from AOL in 2014 and the replacement of the entire board of directors at Darden Restaurants, the company that owns Olive Garden and Longhorn Steakhouse.
Activist investors — typically specialized hedge funds that buy significant minority stakes in publicly traded companies with the goal of changing how they’re run — have become more active within the tech sector in recent years. According to an analysis by Bloomberg Law, investor activists launched more campaigns in tech during Q2 2022 than in any other sector.
But how many of these activists have been successful in achieving their aims? It depends on how you define success.
A Harvard, Columbia and Duke University study published in 2013 looked at 2,000 interventions by hedge fund activists from 1994 to 2007. It found that, in the short run, stocks tend to rise around 6% when activist investors get involved. And the upswings aren’t temporary. In the five years after activist investors show up on the scene, the stock prices of companies targeted by them tended to hold onto the initial gains — even when the activists employed hostile tactics.
Consider the split-up of Motorola’s business in 2008, a move advocated by activist investor Carl Icahn. In 2011, owners of Motorola held stock worth over 20% more than it was before the split — much of it as a result of Google’s deal to buy Motorola’s mobile-focused spinout Motorola Mobility. As Icahn predicted, divvying up the company made the individual pieces more enticing.
That’s not always the case, however — as the past decade or so shows.
