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General Electric Co. (NYSE: GE) is one of America's classic companies – more than a century old, one of the original components of the Dow Jones Industrial Average, ranks 8th in the Fortune 500.
And it just became a target of activist investor Nelson Peltz.
His Trian Fund Management said it had bought $2.5 billion of GE stock and is now a top 10 shareholder. Peltz wants GE to increase its cost-cutting and shift further away from financial operations.
Peltz's stake in GE is part of a shift in activist investing. Over the past decade, activist investors like Peltz have gone after bigger and bigger companies as their assets have grown.
Investors have poured money into activist funds in the hope of sharing the outsized returns for which activist funds are known. According to Hedge Fund Research, the 71 hedge funds classified as activist funds held $120 billion in assets in 2014, up from less than $40 billion in 2009.
Since 2013, Icahn has influenced Apple's $140 billion stock buyback program and rising dividend payments. Icahn owns 53 million shares of Apple stock and is thinking of buying more.
For investors, this means that any stock you own could become an activist investor target. That's not necessarily a bad thing, but activist funds make fundamental changes to corporate behavior.
The top activist investors, which include such names as Dan Loeb of Third Point LLC and Bill Ackman of Pershing Square Capital, can make a lot more happen than just a boost in stock buybacks and dividend payouts.
Here's a look at what can happen to your stocks when an activist investor like Peltz or Icahn buys in…
What Carl Icahn, Nelson Peltz Are Capable Of
Activist investors often agitate for major changes.
Nelson Peltz convinced Kraft Foods Inc. to split off its snack food division as Mondelez Inc. (Nasdaq: MDLZ). Bill Ackman tried (unsuccessfully) to revive JC Penney Co. Inc. (NYSE: JCP). Carl Icahn pushed eBay Inc. (Nasdaq: EBAY) to split off its PayPal unit. Dan Loeb engineered the resignation of Yahoo! Inc. (Nasdaq: YHOO) CEO Scott Thompson and helped bring in Marissa Mayer to replace him.
And it seems the drumbeat of activist fund activity rarely lets up. Yesterday (Wednesday), just two days after we learned that Peltz had targeted GE, Carl Icahn announced that mining company Freeport-McMoRan Inc. (NYSE: FCX) had agreed to add two Icahn allies to its board.
So when a Carl Icahn or Nelson Peltz buys a large stake in one of your stocks, you need keep a close eye on the changes they're seeking.
But what they do can work to your advantage…
When an Activist Fund Targets One of Your Stocks
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.