Seven firms ripe for a shake-up by activist investors

Activist investors have a reputation as asset strippers, but they perform a valuable role, says Matthew Lynn

Edward Bramson
Edward Bramson is back on the prowl
(Image credit: © Sherborne Investors)

Edward Bramson’s Sherborne Investors has finally called time on its campaign against Barclays. In 2018, the activist investor built up a 6% stake in the bank, and used that shareholding to campaign for the removal of the chief executive, and a shake-up of its management and strategy. Not many other investors got on board, however. Last week, he finally called it a day. But if Bramson wants to move on to another company, he won’t be short of targets. Quite a few other chief executives should be feeling nervous.

A pharma giant stumbles

Activist investors have a bad reputation. They are portrayed as greedy asset-strippers, intent on destroying fine old businesses that their staff and customers love. But they play a crucial role in a free-market system. Professional managers often turn into a self-selecting oligarchy who pay themselves vast sums of money for doing very little. It is hard for shareholders to exert any real discipline over them, beyond the occasional protest vote, and a full takeover bid is usually ruinously expensive, loading up a business with debt that can often bankrupt it. The activists simply build up a significant stake at their own expense and then put pressure on the management to shape-up. Without them, firms risk drifting on forever until they finally disappear.

So where should Bramson look for fresh targets? GlaxoSmithKline (GSK) is already, rightly, on the radar of Bramson’s fellow activist investor Elliott Management. While AstraZeneca and Pfizer have been making headlines in the Covid-19 crisis, GSK has been invisible: its one vaccine candidate, developed in partnership with Sanofi, is nowhere close to the market. Under Emma Walmsley, the drugs firm has been consistently disappointing, and her plan to split its consumer and pharmaceuticals division isn’t exciting anyone. The shares have drifted for years. Elliott is already pressing for changes, but two or three shareholders joining forces might finally push Walmsley into leaving the company.

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With retailing still in crisis, it is surely time for Marks & Spencer (M&S) to make up its mind whether it wants to be a clothes or a food company. Its strange hybrid looks well past its sell-by date, and it has long since lost its grip on the fashion market. It should split itself up and sell itself off: if Boohoo are willing to buy brands such as Wallis and Dorothy Perkins to appeal to a different demographic online, they might well want M&S as well; the food business might fit with Amazon, or be fully taken over by its existing partner, Ocado. Both would be a better option than yet another relaunch no one has much faith in.

Unilever is another candidate. There is nothing wrong with its commitment to environmental and social issues, especially at a time when consumers want brands to have a conscience. Yet the shares are no higher now than they were four years ago. The company needs to dial down the woke agenda and focus on growth.

Managing decline

Lloyds has made a full recovery from the catastrophe that followed its takeover of HBOS in the wake of the financial crash. But while the last decade was all about steadying the ship and rescuing the balance sheet, under its new CEO Charlie Nunn it needs to start expanding again.

The two great oil giants, BP and Shell, that dominate the London market talk a lot about their plans to convert to green energy. But there might well be a different path for them. The tobacco conglomerate BAT has accepted that smoking is in long-term decline, but in the meantime it has been fantastically profitable for shareholders. An activist shareholder could persuade both companies it was better to be cash-generating machines in an industry on the way out than one that is always struggling to re-invent itself against newer rivals.

Finally, BT has recently overhauled its management and been rewarded with a recovery in its burnt out share price. But even so, the BT Sport fiasco, which saw the company spend billions on an eccentric foray into football broadcasting, is still a huge headache. It needs a complete overhaul.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.