A rise in shareholder activism poses questions for companies with lagging share performance.
Samuel Brothwell and Angela Ho are senior equity research analysts at Wachovia Securities. They can be reached at samuel.brothwell@wachovia.com and angela.ho@wachovia.com
In a throwback to the 1980s, shareholder activism has been on the rise in the energy sector since last year’s forced shakeup (and ultimate plan to merge) of independent Kerr McGee (KMG).
In the past couple of months, there have been a number of shareholder “actions,” typically taking the form of strong suggestions rather than a brash boardroom brawl. Exelon, for instance, was pressed publicly earlier this summer to consider abandoning its planned acquisition of PSEG. That effort seems to have fizzled.
A few months ago, a New York hedge fund notified Southern Union Co. (SUG) that it had garnered just under 10 percent of SUG’s publicly traded shares, and suggested strategic actions ranging from master limited partnership (MLP) formation to an outright sale of the company to address chronic share underperformance.
Most recently, Mirant backed away from its bold run at NRG, did a 180, and bowed to two of its larger shareholders—hedge funds again— to announce a 43 million, $1 billion-plus share repurchase plan that will be funded via a sale of its Caribbean and Philippines power assets.
Jana partners, which also participated in the KMG shakeup last year, proposed that Houston Exploration buy back its shares or put itself up for sale. A lackluster response spurred a Jana takeover bid and ultimately led to Houston Exploration retaining an investment bank to evaluate strategic alternatives.