00:00What specifically is it threatening? Because you could argue, I mean, activism, it's about the company fundamentals. It shouldn't be
00:06impacted by this overall macro layer. So where do you see the stresses coming in?
00:10So the issue for activists is seasonality. Proxy season is underway. And this is the time of the year for
00:16activists to put up and shop up. So what do I mean by that? Activists identify companies that are undervalued
00:24and then are trying to push them to make changes to unlock shareholder value.
00:28However, the way to do that is by putting pressure on the board, and the board is up for election
00:34once a year at the annual shareholder meeting. The annual shareholder meeting, in turn, at most public companies, takes place
00:41sometime between April and June. And the nomination deadlines under the bylaws are typically around March. So this is a
00:49time of the year when activists actually have to decide, okay, do I commit to a proxy fight to oust
00:56a board or not?
00:57So do geopolitical events like the war in Iran typically have a bad effect on proxy battles? I mean, do
01:07they typically affect these activist campaigns when you look back at, I don't know, Gaza or Ukraine? Did you have
01:14the same effect?
01:14We had similar issues at the onset of the COVID-19 pandemic in 2020. And last year, during the trade
01:25war after Liberation Day, a lot of activists decided to pull back. And they decided to pull back because it's
01:33pretty hard to launch a full-blown proxy fight and then say two weeks later, never mind, I'm out of
01:38here.
01:38Because activist hedge funds are repeat players. They're dependent on other investors supporting them. And no ARP, no hedge fund
01:45is going to support an activist the next time they go into battle if they are not sure that they're
01:51not chickening out.
01:53Wouldn't this be the best time, though, especially if you have a lot of stocks coming out that have been
01:57sold off over war risks, for an activist to come in and see some pretty handsome returns if they can
02:02lift up a company from the sell-off they've seen?
02:04There is something to that. So what we saw both during COVID-19 and last year after Liberation Day was
02:12that a lot of activists were buying in on the dip, acquiring new positions during this market turmoil, and then
02:20approached target companies later in the year, in the summer or in the fall.
02:24But it's too late to do that with new targets, those proxy seasons, because typically the deadlines for nominating an
02:32alternative slate of directors have already run.
02:35Although if you believe strongly in a case for an activist campaign, if you think a company is being operated
02:42inefficiently, that's going to stay the same through the year.
02:45So does this build up? Like, if the war delays proxy battles this season, aren't there twice as many next
02:53season?
02:54It's a great point. So as you probably recall, JFK once said, the rising tide lifts all boats.
03:00Well, the opposite is also true, right? I mean, a sinking tide really, really destroys a lot of boats.
03:07And when you think about it, a lot of companies that are not well managed can fly under the radar
03:15during good times.
03:16And during a crisis like this, it becomes more and more apparent who is actually not well managed and who
03:23is not.
03:24So the other impact of general geopolitical strife and macro uncertainty is more volatile markets.
03:29I was speaking with Paul Taubman on Bloomberg Deals next week, which I know I'm going to force you to
03:34join at some point as well.
03:35But basically saying this idea that between the volatility from AI, from geopolitics, that deal activity is maybe going to
03:42be more muted than we thought in 2026.
03:45What does it mean if M&A markets aren't as open for activists?
03:49Well, that forecloses path number one for activists to make money, because activists, at least in the small and mid
03:56-cap range,
03:58they really try to push companies into a sale that's the easiest and quickest way to make a buck for
04:03an activist.
04:03But they have alternatives, right?
04:06Pfizer CEO, capital allocation, cost cutting.
04:09So it doesn't foreclose activism.
04:11And also, it's an interesting dynamic with M&A.
04:14Yes, all of what Paul said is absolutely true.
04:18Paul is typically right about pretty much everything.
04:21But there's one major factor which is a counterbalance to all of this,
04:25which is this administration is perceived by many as the most lenient in terms of antitrust and regular oversight in
04:34a generation.
04:35So a lot of boardrooms and a lot of C-suites, what we hear is, look, you want to do
04:39a transformational deal?
04:41It's now or never, notwithstanding the otherwise choppy markets.
04:45Do you think that's still true for companies where affordability is an issue?
04:49What if you're looking at something with a consumer company and this White House is obsessed with keeping prices down?
04:54Could they not be more forceful in antitrust action?
04:58Well, politics is always dangerous to comment, in particular on live TV, if you want to keep your job.
05:05But, look, it all depends on the optics.
05:07If a household name is involved that is closely associated with rising prices,
05:13you might indeed face an issue in Washington.
05:16Other than that, I'm not so sure it's going to make a huge difference.
05:19Have we seen, though, the reduction in regulation that the market really was hoping for?
05:26I mean, I remember at the beginning of President Trump's turn hearing people say,
05:32like, the most important thing he'll do is not add new regulations.
05:35And this is what we thought would lead to also, at least in part, an M&A boom.
05:38Have we seen that?
05:40Well, thankfully, not so much because I'm a lawyer.
05:43And, I mean, the less regulation, the less for me to do.
05:45So it's a nightmare scenario for my profession.
05:49But, look, kidding aside, yes, I mean, the Trump administration has made an effort to cut regulations,
05:55including at the SEC, which is doing a great job, actually, weeding out some of the unnecessary regulations.
06:03So I'm not sure it's a major driver of growth just yet.
06:06But, I mean, it's clearly in the right direction.
06:08The other existential angst that everybody is grappling with is AI.
06:12And we've seen on the CEO level, the executive level, some turnover there, too.
06:15Adobe, for example, last week releasing their CEO.
06:19Maybe that's a too-kind way to say it, firing their CEO over concerns that AI is going to have
06:23on Adobe.
06:24Does activism play a role here of coming in and trying to counsel or find the right executive?
06:30How much of that do you think is going to fuel some activist campaigns?
06:33I think activists know exactly as much about AI than anybody else.
06:38So not a lie?
06:38Not a lot.
06:39I think we are all grappling with what it actually means for corporate America and the world.
06:44But I think what we're going to see in future years is we're going to see companies who are going
06:49to miss a boat on this.
06:50And this will be apparent even to activists.
06:53And there are other companies who are going to embrace AI as a mechanism to create value.
07:00And there's going to be a clear tale of two cities down the road.
07:04And activists are going to clearly come after those companies who didn't get the memo on AI.
07:11And there's going to be a clear tale of two cities down the road.
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