Australian listed companies should take a close look at the assault on BHP by an activist shareholder. They could well be next in line to feel the heat from shareholders.
Activist US hedge fund Elliott Associates wants BHP to sell off assets and return capital to shareholders, saying shareholders want a halt to “chronic underperformance” of the miner.
Activism has been the the number one hedge fund strategy since 2005, generating returns of more than 7% a year.
Analysts at Credit Suisse in Australia have been looking at the rise of activism globally but this form of creating shareholder value is just the beginning for Australia.
“It is myopic to assume activism won’t become more common in Australia,” write analysts Hasan Tevfik and Peter Liu in a note to clients.
“In the past we have highlighted how the Aussie equity market is built to support activists with minimal cross holdings and a share-holder friendly legal system.
“Also, a growing superannuation industry is likely to explore the strategy further, just like larger North American pension funds have.
“We expect more activism, not less, in Australia. We very much doubt the Elliott campaign against BHP will be the last of the high profile deals.”
The analysts have picked eight companies that would make ideal targets.
“These companies are cheap, have the capacity to return more capital and can divest underperforming assets,” they write.
“We estimate the average upside for these stocks is around 25%.”
Here are the eight:
“The eight activist opportunities we highlight below include a mix of companies that fulfill the three priorities on an activist’s check list,” says Credit Suisse.
“These stocks are cheap, these stocks can support accelerated capital returns, and these stocks can divest assets to be more productive.”
Some of the companies may take matters into their own hands and try to generate activist style returns for their shareholders without the involvement of an activist.
The analysts say Caltex is an obvious one for further restructuring.