Activist investors can bring a lot to the table in terms of financial and investing expertise, as well as demanding a fair deal on behalf of all shareholders.
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In this clip fromIndustry Focus: Tech, Motley Fool analystsDylan Lewis and Evan Niu, CFA, discuss the benefits of having a major activist investor hoping to enact change at a company in your portfolio.
A full transcript follows the video.
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This podcast was recorded on Oct. 21, 2016.
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Dylan Lewis: Activist investors get kind of a bad rep. Do you want to maybe play devil's advocate and provide some pros here?
Evan Niu:What we touched on earlier, I think the big piece is: Activist investors spend all day thinking aboutinvesting, and the deep financing of it,whereas management spends all day thinking abouthow to run the business operationally, andactually growing the business in whateverthe company does. To the extent thatthe investor knows more about some of the financial aspects,it can really bring a lot to the tablein terms of, if there's something that needs to be improved, if you have too much debtand they're pushing for you to pay down your debt,all these different things wherea company CFO generally handles those kind of decisions. Depending on the CFO andhow experienced they areand how cognizant they are -- because,companies have a wide range of how much they value their investors. A lot of companies really value their investors, they really value their input, they really want to deliver return. Other companies don't care as muchbecause there's so many stakeholdersin any company...
Lewis:Yeah,you have investors, you have consumers, you have employees.
Niu:And management, and the board. You have all these people. And,of course, every company is differentin terms of how they view and value each of these stakeholders. And,obviously, there are companies that are very bad about respecting theirshareholders. They just kind of do what they want,or they enrich themselves. There'splenty of cases of companies that don't really treatinvestors with a lot of respect,generally speaking. So if you get an activist investor that gets in there, itkind of forces them to respectthe shareholder base, in some ways.
Lewis:Yeah. To bring it back to the idea of,how should shareholders feel if they see this going onin a company that they're invested in? I think the hypothetical where you're happyabout an activist investor hopping in is,maybe you love the core business and the market that it reaches,and some of the growth potential there,but you see management really mishandling thingson the financial side.
Niu:Exactly. And it's hard to know when that's happening, butif an activist comes in there --even though it can be distractingfor management to have to deal withspending a lot of time catering towhatever this person wants and needs --most of the time, I think they do want to be helpful. Particularly from theperspective of a public investor,most of the time I think it's probably OK. They'retrying to help shareholders, in general.
Lewis:Yeah,it might just be that their horizon is a little bit different.
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