The financial engineers are starting over. Discussions of financial engineering regularly focus on building massive amounts of debt, zero-based budgeting, share buybacks, increasing dividends for investors, and cutting costs. Now the spotlight is on the fallout. It turns out that splits forced by activist investors can be damaging to the corporate brand that is being asked to part – part ways – of its assets.
New research indicates that after a split under pressure from activists, the remaining company is not doing well. (The study is part of a larger report, Review of Historical Stock Spin-Off performance: The Opportunity for Active Investors – Spin-Off Insights). This 2018 study of Global S&P shows that spinoffs are doing well for investors. However, the parent company usually lags behind in terms of cumulative returns.
Paul Singer of Elliott Management lobbied AT&T to separate. And, it recently hit its target with AT&T agreeing to sell roughly $ 10 billion in assets over the next three years with $ 5 billion to $ 10 billion to sell next year. Emerson Electric is under pressure from DE Shaw managers Edwin Jager and Michael O’Mary to separate. If successful, these activists will create instant profits for investors. According to information in this study, Elliott Management and DE Shaw could in fact negatively impact the top brands they target for better performance while pursuing rapid financial payoff.
AT&T and Emerson Electric could potentially damage the brands they have created and nurtured over time. Instead of investing in brand building, governance, improving the quality of products and services, innovation and customer loyalty, these iconic branded companies focus on immediate profits first. activist investors. No discussion of how these profits will be used to build bigger, better and stronger brands.
While discussing the study, Lex of the Financial Times column examined the fallout from parent brands CBS and Philip Morris. This fallout happened over a decade ago. the The ex the analysis is striking: The ex calculated that shareholders have lost £ 50 billion (around $ 65 billion) since the fallout. Once again, the activists’ short-termism with their financial gymnastics can be a disaster in the long run.
Lex of the Financial Times Columnists urged shareholders to be very skeptical of activists’ promises of better performance through splits. the The ex The opinion is that “if these (divestitures and spin-offs) don’t create long-term value, they are no better than a short-term asset shuffle. “