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0:00
Hello. I'm Dr. Michael McDonald.
I'm an Associate
Professor of Finance at
Fairfield University in
Fairfield, Connecticut,
and today I'd like to talk
to you about a unique case,
Pitney Bowes and how
this illustrates
the playbook of
activist investing.
0:19
A little background
on Pitney Bowes.
Pitney Bowes is an old company
that was founded in 1920,
and they're one of the best-known
companies in the world
in terms of a specific
product they make.
Pitney Bowes is the
largest maker of
mail metering equipment
in the world.
Specifically, what
this means is that
if you don't want to
have to put a stamp
on every single envelope,
you instead run it through
a Pitney Bowes machine
and it prints out
that little red or black
postage in the top corner.
This lets you put your
envelopes right in the mail,
and you don't have
to go through and
add a stamp to every
individual envelope.
Now, for an individual or
a person like you or me,
that's not a big deal.
We probably don't
send out dozens or
certainly hundreds of envelopes
every day or even every month.
But for a lot of
companies, they do.
Pitney Bowes makes this
mail metering equipment
and sell this all
around the world.
They've been doing this for
more than a century now.
The company is headquartered
in Stamford, Connecticut,
which is right down the road
from Fairfield, of course,
so it's a firm I'm
familiar with.
But they have about
600000 clients worldwide,
and as I mentioned, they're
one of the best-known,
if not the best-known, firms in
the mail solutions business.
1:37
Now, let's take a step
back from Pitney Bowes
and talk about
activist investing.
Activist investing involves
shareholders, often hedge funds,
acquiring a significant
stake in a company
and then using that
stake or using
their new ownership
position in the firm
to influence management
and strategic direction.
Now, why do firms do this?
Why do hedge funds do this?
Well, obviously, they're in
the business of making money.
They're trying to make
their investments
as profitable as possible,
so they're trying to push
the firms that they're
acquiring stakes in
to make operational
improvements that will improve
profitability and ultimately
the value of the firm.
That's why anybody
invests in anything.
You're trying to
make money, right?
Specifically, activist
investing often has
various common objectives
between different
activist campaigns.
We're either trying to make
operational changes to
improve efficiency
and profitability,
or we're doing a
strategic realignment
where we're trying to
refocus on a core business
and shed distracting
ancillary businesses,
or perhaps we're doing
financial adjustments
like optimizing
capital structure
or introducing new debt or
new debt management tools
that might make the firm
healthier in the long run
or maybe we're doing
governance reforms,
altering the board composition
and executive leadership,
to try to make sure
the board is focused
on running that firm
as best as they can.
There's a variety of
different methods
that activist investors use.
This typically starts
with engagement.
The firm buys up some stock,
and then they go and have
direct discussions with
company management
and the board of
directors and say,
"Hey, these are the changes
we'd like to see you make,
and we think this will make
the firm more successful,
and ultimately, it'll be good
for investors that way."
If this doesn't work, if the
firm is not receptive to changes
or they're not receptive enough,
the activist investor will
typically then engage
in a proxy battle.
This involves
encouraging shareholders
to vote for proposed changes,
including, for example,
trying to get representatives
of the activist hedge fund
onto the board of
directors of the company.
Then, finally, the
activist investor
will often use public campaigns.
If the company is
not receptive and
not willing to make changes
in direct engagement,
the activist is going
to turn around,
and they're going to use
media: television, CNBC,
the Wall Street Journal,
Bloomberg, and things like that,
to try to garner support
for their initiatives
and explain why the firm is
underperforming historically,
and why things could be
improved going forward.
