Market Talk: What Exactly Is A Wolf Pack?

There is a lot of national buzz about entrepreneurship, with one study finding the majority of millennials wanting to start their own business [1] Another study reported only 10% of millennials and generation Z interested in finance with most interested in tech. [2] It’s clear that tech startups are in and banking is out, with the shift towards Silicon Valley and away from Wall Street regarding young people’s career interest. What exactly is a Wolf Pack?

Shows like CNBC’s Shark Tank have helped to glamorize the role of the entrepreneur. However, there’s no denying it’s a tough job. Warren Buffett famously said, “I am a better investor because I am a businessman, and a better businessman because I am an investor.”wolf pack, stockpile

As it turns out, there’s a halfway point between being an investor and an entrepreneur, what is known as an activist investor. An activist investor purchases shares in a company, and then seeks to influence management into making changes to the company’s operations they believe will help boost the share value. Sometimes this is a more collaborative exchange, such as when Carl Icahn influenced Tim Cook to start paying a dividend to Apple shareholders.

Other times, shareholder activism becomes hostile in what is known as a “proxy battle”, when an activist seeks to get one or multiple board seats of members they nominate so they can have a say on how the company is run. One recent proxy battle involved Procter and Gamble, which fought the most expensive proxy battle in history with activist Nelson Peltz. Mr. Peltz was trying to get P&G to purchase smaller brands which appeal more to millennials to boost sales.

In a proxy contest, shareholders decide which director they wish to put on the board. They can either go with the activist’s board nominee, who often wants to make significant changes within the company or vote for existing management. Similiar to an election of governmental officials, this is an expensive process of persuading the shareholder public and tallying their votes. One oddity is that management of a company can spend it’s shareholders’ money in defending their own board seats. However, the activist will need to finance their own campaign.

Mr. Peltz ultimately lost the P&G proxy battle by a very tiny margin, which cost ~$125 million. [3] However, P&G management gave him personally a seat on the board anyway. They were not legally required to do so, but the closeness of the vote may have contributed to their decision.

You could liken being an entrepreneur to an extreme form of a shareholder activist, closely guarding over and watching the investment in the company which they are involved in. By the same token, a shareholder activist is a “lazy” entrepreneur, seeking to run and part own a company at a high level but not having to go through the trouble and difficulty of starting it. Nonetheless, not all shareholder activism is directed towards making more profit. Sometimes, an activist seeks to change a company’s environmental performance, treatment or workers or another issue.

What is a Wolf Pack?

A “wolf pack” forms when multiple shareholder activists get involved with the same company at the same time. The pack acts in concert, but is careful not to have a written agreement due to SEC laws to achieve a common goal. Shareholder activism often boosts the price of the firm which is the target, so one activist attracts others who seek to “piggyback” upon their efforts. In the shareholder democracy of corporate America, the amount of votes one has is directly proportional to how many shares one owns. There are a few exceptions, such as Facebook which has “founder” shares not available to the public that have 10X more votes, giving Mark Zuckerberg control of the company indefinitely.

Article Contributor: Mark Biwojno

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/meghan Gardler