Anti-deal activism is mostly done on the seller side where a shareholder typically seeks a higher takeover price. Opposing deals on the buyer side is rare as the upside for the activist is, at best, unclear. However, 2021 showed that tone-deaf buyers might get in uncalled-for trouble if they pursue deals without the support of their own shareholders.

Red line

The latest example is software company Zendesk, whose move to acquire Momentive Holdings sparked universal rebuke from shareholders and analysts alike. Shortly after the merger was announced, Insightia’s Vulnerability module reported that Zendesk surprised shareholders with the Momentive deal at a time when execution had just started to improve. Zendesk shares plunged.

Barry Rosenstein’s Jana Partners swiftly took a stake and launched a campaign against the deal, arguing the merger “lacks financial merit, has questionable strategic logic, and introduces a high degree of execution risk.” The transaction was voted down by shareholders, leaving Zendesk not only without its prize but also facing a proxy contest with Jana and pressure to sell itself.

Earlier in 2021, Canadian National Railway stirred the ire of Chris Hohn’s The Children’s Investment Management (TCI) after engaging in a bidding war for Kansas City Southern with Canadian Pacific Railways. TCI, also a large shareholder in Canadian Pacific, said Canadian National did not need Kansas City to prosper and instead should focus on improving its own operations.

Canadian National was forced to drop the bid, reshuffle its leadership, and give TCI board seats after the activist launched a proxy contest. Before that, TCI was largely a passive shareholder.

In Europe, Unilever’s pursuit of GlaxoSmithKline’s (GSK) consumer arm raised eyebrows among analysts and shareholders at a time when the company was heavily speculated to be an activist target. A shareholder, Flossbach von Storch, said last month Unilever should consider a breakup, and Trian Partners is believed to have similar ideas. After the failed GSK adventure, Unilever CEO Alan Jope said he is no longer seeking megadeals after engagement with the shareholder base.

From hot to cool

The M&A market was red hot in 2021 and many companies tried to take advantage of the favorable conditions to push deals through. However, shareholders have been unusually vigilant in trying to stop deals either due to what they saw as unacceptable takeover prices or lack of strategic benefits. According to data from Insightia’s Activism module, investors opposed 73 deals in 2021, the highest number since at least 2018. At the same time, they pushed for 69 deals, an all-time low.

Of these, 10 deals were withdrawn in the U.S. and Europe in 2021 after an activist voiced discontent. The number is up from nine in 2020 but down from the record of 15 reached in 2018. Still, some 2021 opposed deals have not concluded yet, potentially leading to a higher number.

With the M&A market likely to slow down in 2022 amid rising inflation and interest rates, and global geopolitical uncertainty related to Russia’s invasion of Ukraine, there are signs that the trend is reversing. Activists are again pushing for more deals and opposing fewer. So far this year, 27 companies have been pushed to sell themselves globally, versus opposition at nine.

Not like last time

Activists have been more successful in thwarting deals on the buyer side than in the 2018-2019 proxy season, the last time this kind of anti-deal activism took hold.

Starboard Value attempted to block Bristol-Myers Squibb’s takeover of Celgene, Pershing Square and Third Point opposed United Technologies’ plans to acquire Raytheon, while Carl Icahn campaigned against Occidental Petroleum’s buyout of Anadarko Petroleum. The activists failed to stop these deals, and some sold their shares in protest.

Yet 2021 showed that companies should be mindful of potential blowback from deals, which could include proxy fights and pressure to make management and board changes.