Shareholder activism is set to reach a record high in 2015, with primarily credit-negative implications for companies and credit investors alike, New York City-based Moody’s Investors Service announced on Tuesday.
As of mid-October, there have been 178 public shareholder activist campaigns so far this year, compared with 165 over the same period in 2015, Moody’s said, and the credit rating agency expects the yearend tally to total between 225 and 235, up slightly from 222 last year.
“Activists still have plenty of firepower to shake up company boards, push for M&A activity and seek business strategy changes,” said Christian Plath, vice president and senior credit officer at Moody’s, in a statement.
“But activism has become a crowded field, with too many players chasing after a diminishing number of attractive targets. And recent market volatility has somewhat reduced their ability to launch new campaigns,” Plath added.
Indeed, Moody’s expects shareholder activism to level off, or even decline, in 2016 for North American non-financial corporates. There are a number of headwinds to shareholder activists, Moody’s notes.
For example, separating companies’ physical assets has been an increasingly popular demand among activists, Moody’s says, but that increased scrutiny from the U.S. Internal Revenue Service (IRS) of real estate spinoffs could slow activist activity in this area.
In addition, the prospect of interest rate hikes, and preemptive moves by companies to make shareholder-friendly moves, have curbed demands for higher dividends and buybacks.
“The biggest threat to activists would be a prolonged downturn in the equity markets and continued volatility in the commodities sector,” said Plath. “In the event of a sustained downturn, companies would take the wind out of activists’ sails by lowering their risk tolerance and adopting more conservative strategic and financial policies.”