Market Talk: What exactly is a wolf pack?

Summary

  • A “wolf pack” is a group of shareholders who try to gain control of a corporate board. 
  • These activist investors work together, but without an explicit written agreement.

A “wolf pack” forms when multiple investors get involved with the same company at the same time. The pack acts in concert, but is careful not to have a written agreement to achieve a common goal. If they did have such an agreement, it would violate SEC laws.

Investor activism often boosts the price of the firm which it targets. So one activist attracts others who seek to “piggyback” upon their efforts.


Activist Investors

To understand a wolf pack, you have to understand what activist investors are.

As it turns out, there’s a halfway point between an investor and an entrepreneur. This is known as an activist investor. An activist investor purchases shares in a company, and then seeks to influence management into making changes to the company’s operations.

You could say that a shareholder activist is a “lazy” entrepreneur, seeking to run and part own a company at a high level without having to go through the trouble of starting it. That said, not all shareholder activism aims to make a profit. Sometimes, an activist seeks to change a company’s environmental performance, treatment of workers, or some other issue.

Sometimes investor activism is even a collaborative exchange, such as when Carl Icahn influenced Tim Cook to start paying a dividend to Apple shareholders.

Proxy Battles

Investor activism can become hostile in what is known as a “proxy battle.” This is when an activist seeks to get one or more board member seats they nominate so that they can have a say in how the company is run.

In a proxy contest, shareholders decide which director they wish to put on the board. Similar to electing government officials, this is an expensive process of persuading the shareholder public and tallying their votes. One oddity is that management of a company can spend its shareholders’ money in defending their own board seats. Meanwhile, the activist has to finance his own campaign.

One recent example is activist Nelson Pelts who fought a proxy battle with Procter and Gamble. Peltz sought to make P&G purchase smaller brands which appeal more to millennials.

Peltz ultimately lost the P&G proxy battle by a very tiny margin. The fight cost around $125 million. However, P&G management gave him a seat on the board anyway. They were not legally required to do so, but the closeness of the vote may have contributed to their decision.

 

Article Contributor: Mark Biwojno

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/meghan Gardler