Activist Investor

Shmegeggie Foot Massagers has been around forever. Great grandpappy Elmo (Spanish for “The Mo”) sold them to the US army after long marches through the Ardennes in the first war to end all wars. The soldiers then bought them when they got home, and consumers followed suit. The company was so successful that it didn't need to be all that efficiently run.

It went public in 1965, and was a good stock for a while. Then, in the early 1990s, the company didn’t adopt to the new world of internet distribution and robot manufacture, so the stock languished. It remained the same price in 1995 that it was some two-plus decades later. During that same period, the overall stock market went up almost 500 percent, and Shmegeggie’s primary competitor, Pied a Terrible, went up 800 percent, stealing loads of market share from Shmeg.

Since this company was public and largely now owned by the public, the public had the right to have a say in how the company was managed. Endless angry letters were sent to the CEO, Elmo IV, Jr., direct descendent of Pappy Elmo the founder. Those letters were ignored. More letters followed to the board. Ignored. Then finally, a set of activist investors decided that it was time to step in...ironically, on comfortably massaged feet, courtesy of Shmegeggie.

The activist investors simply coalesced all of the common stock shares that they could find, and when the next board election came, where 3 of 11 director seats were to be voted on, the activist investors elected their own slate, or group of directors, who would begin to force the company to behave more like a shareholder-friendly, profit-seeking one, instead of a make-work project for the progeny of Pappy Elmo to simply take a salary and make tens of thousands of sore feet relatively happy.

In fact, the activism here was pretty common in situations like this...fat companies who didn’t streamline and adapt. And there is a whole cadre of lawyers who do little other than chase companies earning 20 cents a share when they should be earning a dollar. Activist investing has become so common that it is almost an industry or investment strategy unto itself now. And that’s a good thing, because some of those fat companies could stand to lose a pound or two.