Activism and Takeovers

We compare activism and takeovers from a blockholder’s perspective who can invest effort into improving firm value. Profits from the two intervention modes move in opposite directions when the marginal return to effort changes such that activism, although less efficient, can be more profitable. Activists are most efficient when brokering takeovers rather than restructuring firms directly. Such takeover activism should record superior returns as its opportunity cost includes the foregone returns from free-riding on tender offers instead. Our results suggest that activists specialize in governance reforms and that limited, temporary engagement is a strength rather than a shortcoming of activism.