The companies are under pressure to generate bigger returns.
Lauren Hirsch and
When a company’s stock starts to drag, activist investors often swoop in to shake things up, pressuring the laggard to cut costs, shed poorly performing assets or even consider selling itself altogether.
Sensing opportunity for investment profits at a time when the stock market has been rocky, activists have taken aim at their latest targets: the multinational consumer goods company Unilever, the fitness equipment maker Peloton and the department store chain Kohl’s.
Shares in Unilever rose more than 6 percent on Monday on the revelation that Trian Fund Management, the investment firm founded by Nelson Peltz, has amassed a stake in the consumer products giant.
The emergence of Mr. Peltz in Unilever’s stock, previously confirmed by people briefed on the matter, poses another challenge for the company, days after it was forced to drop its $68 billion takeover bid for GlaxoSmithKline’s consumer health business.
It is unclear how much of a stake Trian owns or what it is calling for. But Mr. Peltz is one of Wall Street’s most prominent activist investors, who has successfully pushed for change at consumer goods companies like Mondelez and Procter & Gamble. His successful battle to win a seat on Procter & Gamble’s board in 2017 was the costliest such fight on record.
Shareholders and analysts appear to be hoping that Trian will prod Unilever into selling lower-growth brands, something that Mr. Peltz has pushed companies to do in the past.
But others warned that even Mr. Peltz may not be able to improve the company’s fortunes anytime soon. “The changes required to culture and structure will take time and may fail, as they have done previously,” Bruno Monteyne, an analyst at Bernstein, wrote to clients on Monday. “Unilever stock is likely to be an emotional trading stock for years.”
In a letter to the embattled at-home fitness equipment maker, Blackwells Capital called for directors to fire the company’s chief executive, John Foley, who is also a co-founder, and to weigh a sale as its shares tumble amid falling sales and growing inventory. Peloton said last week it was considering layoffs and “resetting” its production levels for “sustainable growth.” The stationary bike company initially had to ramp up production to meet pandemic demand — and has now found itself with excess inventory as more people head outdoors for their fitness.
Peloton is “on worse footing today than it was prior to the pandemic,” Blackwells wrote. “With high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders.”
Shares of Peloton have tumbled more than 80 percent over the past year, giving it a market capitalization of a little over $9 billion. Shares were up more than 4 percent in morning trading.
Still, any fight might be an uphill battle: Peloton has two shares of stock, where Class B shareholders have drastically more voting power — and Mr. Foley alone controls nearly 40 percent of shareholder votes. A representative for Peloton did not immediately respond to a request for comment.
The retailer Kohl’s has received a roughly $9 billion offer to go private in a deal with an investment consortium backed by the activist hedge fund Starboard Value, according to two people familiar with the matter. The private equity firm Sycamore Partners has also reached out to Kohl’s about a potential deal.
Kohl’s confirmed on Monday that it had “received letters expressing interest in acquiring” the company. Its shares are up more than 30 percent in early trading.
Kohl’s is already under pressure to improve its share price. The activist firm Macellum Advisors, which has a 5 percent stake in Kohl’s, urged the retailer in a letter last Tuesday to explore strategic alternatives, including a sale. That move came after Macellum raised similar criticisms over Kohl’s stock performance last year. The hedge fund Engine Capital has also been calling on Kohl’s to consider a sale, along with other strategic initiatives.
But it is not clear whether Kohl’s will approve a sale, which would depend on whether the initial suitors can secure the necessary financing.
Starboard has helped Acacia Research Corporation, which is leading the consortium’s bid, to raise equity to pay for its offer. Acacia has also received a letter of confidence from a bank pledging support for arranging debt. It is in talks with a firm that would sell off part of Kohl’s real estate to help fund the bid, in what is likely to result in a “sale-and-lease-back” transaction, in which a company leases back the real estate it has sold.
Such sale-lease-back deals have worked at companies like Bed Bath & Beyond, but they have fared poorly for others like Sears, because the cost of rent can limit the company’s ability to spend on capital investment. They also often entail long-term leases, which could lock Kohl’s in to property at a time it needs to be nimble.
Kohl’s said last year that various covenants inhibited its ability to do such deals. It also said moves like those could threaten its investment grade status.
“We think adding fixed costs as margins hit multiyear highs and are at risk of retrenchment is risky, and we are wary of the rent expense that Kohl’s would have to shoulder through a full cycle,” analysts at Bank of America wrote about a potential lease-back.