Australia: Insights of activists and activism: Why we have seen a rise in activist funds examining Australian listed entities for opportunities

The recent surge in attention being given to "activist shareholders" in Australia has seen them getting a more sympathetic ear from fund managers. Previously low profile funds are now showing a willingness to engage with activists to understand their proposals for improving share price performance rather than necessarily siding with the incumbents.

We recently hosted a series of panel sessions on shareholder activism where we heard from specialists on proxy solicitation, corporate governance, activist shareholders and large superannuation funds. The different perspectives of these participants were clear and highlighted the everyday tensions in the activist battle for corporate control.


Activist shareholders can have vastly different motivations and objectives. Some special purpose activist funds want to capitalise on short term opportunities. Other activists want to promote long term changes to the company's strategic direction, like mergers or changes to capital management policies such as dividends, capital returns, buybacks or gearing levels. In the most disruptive cases, the activist may be an ultimate buyer of the company or its assets or may believe there is more value if the company is broken up with assets being sold or spun off.

The management team of the target company also face unique challenges. Activists typically begin their engagement by buying up a block of shares. They then sound out management often presenting an alternative view about how they think management can make changes to increase shareholder value. For the management team this can be a challenging start to a relationship and requires patience and a certain disinterested stance on the current strategy.

The stance of institutional shareholders to activists varies. Some are willing to align themselves with activists, opting to campaign to improve company performance and increase shareholder returns. Others prefer to back the incumbent management team, and while it is hard to generalise, the default position will usually favour preserving the status quo.

Corporates are not the only ones under pressure; active funds are also under pressure to demonstrate the benefit of their management style. Neither can afford to ignore the activist holders. In all cases our experience is that institutional holders will carefully review the position to make sure they are fulfilling their fiduciary duties.

Activist hedge funds have been incredibly successful. The Wall Street Journal reported that in 2013 US hedge fund activists won more than 68% of their proxy fights, compared to 43% the previous year. Returns for activist funds have outperformed the general market, leading to increased capital being allocated into this asset class and a need for activist funds to find more potential target companies. In the US, superannuation funds, university endowments and private institutions have all thrown their support behind activist campaigns. In many cases it seems that the view from these institutions is that hedge fund activists can step in to improve a company's performance rather than just speculate on it.

The pressure to find opportunities has meant that US and UK activists are now targeting Australia. In addition there are a growing number of Australian-based activist funds.


The activist's armoury consists of lobbying, putting forward shareholder resolutions – like board spill proposals and constitutional changes -- at general meetings, media campaigns and even litigation. Add to this the inevitable media pressure and public interest. The media loves the drama of a battle especially since it often boils down to an attempt to oust the board and this necessarily puts personal pressure on directors. That pressure is part of the stock in trade for activists but for many directors it is a kind of pressure with which they are not very familiar.

While Australian courts are more reluctant than their US cousins to explore the motivations of directors and so generally keep the outsider outside the boardroom, there's no doubt that in general, the rules in Australia favour the activist. Not only is a 5% shareholding enough to requisition a general meeting to propose a board spill, but the 100-member rule (which the Federal Government intends to change) and the two-strikes rule are both potential grenades that can destabilise management in the hands of a skilled protagonist.

Potentially the most difficult legal rule is the rule left to us in 1987 by Justice Kirby and the NSW Supreme Court as a result of Larry Adler's tilt at Advance Bank.

The Advance Bank Case set down strict criteria in relation to the directors' conduct in a contested election including limits on the ability of directors to spend the company's money to defend their positions. While the case has traditionally been narrowly interpreted and the boundaries about what is permitted remain murky, it does not mean that all electioneering is forbidden; just that the boundaries about what is and is not permitted are unclear.

Board spills and takeover bids both involve potential changes in control of a company. However, there are fewer protections for target companies in an activist campaign than a takeover bid. Unlike bidders, activists don't need significant funding or detailed due diligence. With no bidder's statement or similar disclosure obligations, activists also have minimal disclosure obligations.

Stephen Davidoff of the New York Times somewhat excitedly predicted that "the hostile takeover is on life support, if it's not dead altogether. The hostile raider, however, has been replaced by the activist shareholder." While they may be on the rise, it may be a little early to be writing obituaries for the hostile takeover, at least in this market.


If an activist takes control of the board then the other shareholders are not sharing in the premium for control. This has been seen as a ground of defence by some boards for "locking out" activists. While it is true that the activist model does not usually include paying a premium for control it is also true that all shareholders (without cost) should share equally in any improvement in a company's performance (a so called "free ride").

It is easy and simplistic to characterise the activist campaign as a game with some in white hats and some in black hats. The truth is that there are goodies and badies on both sides and like any battle for corporate control your view of the protagonists is heavily coloured by your perspective.


Companies with the following characteristics are particularly vulnerable to shareholder activists:

  • Weak share price: a strong share price is the best defence to shareholder activism. Most at risk are underperforming companies with problems that are 'fixable' and those with larger cash balances.
  • Break-ups: companies that have multiple assets or divisions and are trading below sum-of-the part valuations are prime targets.
  • Poor corporate governance and market communications strategy: companies with poor corporate governance and where management do not have a credible, well understood long-term strategy.

Companies can reduce their risk of being targeted by staying in regular contact with their shareholders, knowing what the shareholders are thinking and monitoring what they are doing at other companies.


If an activist makes an approach, companies should be prepared to at least listen. There is no obligation to discuss or negotiate with the activist, but it pays to understand as much as possible.

If a company receives a requisition notice you should:

  • assemble a team to assist the Board decide on its response
  • confirm the validity of the requisition notice and what steps might be taken to strike it out
  • ascertain who are the activist supporters, motives, past strategies and shareholder allies

During a proxy campaign you should monitor trading and understand what is being said in mainstream media, social media and the wider broking community. An experienced proxy advisory firm should be engaged and a careful strategy of communication with institutional and retail shareholders is essential. But remember it's hard to make friends in a crisis! If you leave it until there's a problem it will usually be too late.

Be prepared and patient. Activists are sometimes focussed on the short term, but in our experience many are willing to wait, sometimes years before taking action.


Activist shareholders are and always have been part of Australia's corporate landscape. The number of successful funds in Australia and overseas means they are likely to be more active in the next few years. And more local institutions are going to engage with activists to explore opportunities to improve a company's performance.

There are some simple steps you can take to limit an activist fund's ability to use their leverage against you:

  • First and foremost, you must have a clear and well understood strategy that is communicated to ensure that key shareholders understand management's motivation and support their decisions.
  • Secondly, you should be prepared to engage with activists to understand their motivation and to explain why the current strategy is preferable. This means looking at yourself from an activist perspective and making sure that your strategy is justifiably targeted at improving company performance.
  • Lastly, when all else fails there will be a need for experienced counsel to help navigate the uncertain landscape of requisitions, proxy rules and director's duties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions