Shareholder activism has increased dramatically in recent years: Activist investors are becoming more assertive in exercising their influence over companies in which they have a stake. How well a company prepares for engaging with an activist is often the difference in how a campaign unfolds.

1. In the loop
May 2015
Shareholder activism—
are you prepared to respond?
Shareholder activism has increased dramatically in recent years
Activist investors are becoming more assertive in exercising their influence over
companies in which they have a stake. How well a company prepares for
engaging with an activist is often the difference in how a campaign unfolds.
Is your company a likely target for activists?
Companies can become targets, particularly of hedge fund activists, for varying
reasons. Targeted companies often have similar characteristics, such as a low
market value relative to book value, even though they are profitable, have well-
regarded brands, and sound operating cash flows. They may also have cash
reserves that exceed their own historic norms or those of their peers — causing
some in the market to question their rationale for such large reserves. Activists
are also alert to companies with one or more underperforming business lines. In
addition, targeted companies often have institutional investors that own the vast
majority of their outstanding stock.
What you need to know
- More than $100 billion in assets
were under activists’ management
in 2014, up sharply from previous
years.
- Activism represents a range of
activities that include seeking
changes to corporate strategy or
financial restructurings, “vote no”
campaigns, shareholder proposals,
and “say on pay” advisory votes.
- Companies can become a target of
activism for a variety of reasons,
with underperformance relative to
their peers often a common factor.
- Viewing the company as an activist
would help management and the
board anticipate, prepare for and
respond to an activist campaign.

2. © 2015 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
Preparation is key
By putting themselves in the shoes of an activist, companies can be better
prepared if they become a target of activism. In our view, there are four key steps
that a company and its board should consider:
• Critically evaluate all business lines and market regions. This may
mean reevaluating how data is aggregated and analyzed to highlight
underperforming assets.
• Monitor the company’s ownership and understand the activist.
Understanding the activist's play book may help the company assess its risk
of becoming a target. It may also help the company identify which investors
are likely to support an activist.
• Evaluate the risk factors.1 Consider whether to proactively address one or
more risk factors in areas where an activist might focus (e.g., low market to
book value).
• Develop an engagement plan that is tailored to the company’s
shareholders and the issues the company faces. A plan to engage
other shareholders in areas that may attract the attention of an activist can
help prepare for—and in some cases help avoid—an activist campaign.
Effectively responding when approached by an activist
While companies will need to consider how to respond based on the facts and
circumstances, an effective response plan generally includes three components:
• Objectively consider the activist’s ideas. This may identify areas of
compromise and/or value-creating ideas for the company to consider.
• Look for areas around which to build consensus. Finding a way to
work with an activist may avoid the potentially high costs of a proxy contest.
• Proactively engage with the company’s key shareholders to tell the
company’s story. This will allow the company to share its perspective with
all shareholders, including those who may have been engaged by an activist.
1 These risk factors are illustrated in PwC's Shareholder Activism Risk Assessment Tool.
Companies that put
themselves in the shoes
of an activist will be
most able to anticipate,
prepare for, and
respond to an activist
campaign.
In the loop
Executive-level insight into
today’s top financial reporting
and regulatory issues
How PwC can help
To have a deeper discussion about how
shareholder activism may affect
your company, please contact:
Beth Paul
973- 236- 7270
elizabeth.paul@us.pwc.com
Mary Ann Cloyd
973-236-5332
mary.ann.cloyd@us.pwc.com
You may also want to see
Shareholder activism—Who, what,
when, and how?
PwC’s Shareholder Activism Risk
Assessment Tool
Keep calm and stay prepared: An
introduction to shareholder
activism (video)