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London (CNN Business)Tesla (TSLA) CEO Elon Musk’s noisy campaign for changes to how Twitter runs its business has grabbed headlines for its twists and bombast. And, of course, for the big surprise — a takeover bid.
What’s happening: Twitter’s board of directors convened Sunday to discuss Musk’s offer. The world’s richest man has lined up $46.5 billion in financing to take the social media company private after amassing a significant stake.
The meeting on Sunday indicated the board is willing to negotiate, despite previously taking steps to try to prevent Musk from buying the company.
Many investors don’t get the attention Musk generates, and typically don’t go to the extremes of launching a takeover. But a growing number are using significant shareholdings to push companies to overhaul their strategies.
See here: New research from Lazard shows 73 new shareholder campaigns were launched globally during the first three months of 2022, making it the busiest quarter on record. Activists won 38 board seats.
Most of the action was in the United States, which represented 60% of new campaigns. Some high-profile examples include Carl Icahn’s fight with McDonald’s (MCD) over its treatment of pigs, and Blackwells Capital’s effort to remove founder John Foley from Peloton (PTON).
Shareholders who want companies to change direction are pressing for even more influence. According to Lazard, 85 board seats remained “in play” heading into the second quarter, including at department store Kohl’s (KSS) and toymaker Hasbro (HAS).
Step back: Shareholder activism has been around for years. But it took a pause when the pandemic hit in 2020, and corporations were urged to hunker down and prioritize continuity. Now, it’s booming again.
One factor is the extent to which companies are being urged to address environmental and social issues, which creates new opportunities for activism.
Lazard noted that the Securities and Exchange Commission’s proposal to compel public companies to disclose more climate-related information could further embolden shareholders, since it will facilitate easier comparisons between firms.
Another driver may be easy access to capital. The private equity industry is flush with cash and has shown an increasing willingness to give shareholder activism a try. Private equity firms are also partnering with activist investors, supercharging their efforts.
“While activists and private equity investors have continued to borrow from each other’s toolboxes, they have also increasingly teamed up on strategic campaigns,” partners at the law firm Shearman & Sterling wrote in late November.
On the radar: Other reporting changes proposed by the SEC earlier this year could dampen shareholder activism, however. In February, US regulators said investors should reveal a stake of more than 5% in a company after five days, instead of after 10 days, making it harder for activists to quietly build big positions. They also said groups of investors needed to indicate if they were working in tandem.
The proposal has support from the influential Business Roundtable, which said earlier this month that it “will significantly improve transparency.”
But not everyone is in favor. The firm run by billionaire investor Bill Ackman — who recently said he would retire from the “noisiest” form of shareholder activism — said the rule “proposes a sweeping and thoroughly disruptive solution that would harm market participants and issuers alike.”
European stocks fall despite Macron’s win in France
Emmanuel Macron won France’s presidential election, fending off a historic challenge from far-right candidate Marine Le Pen on Sunday. He’s the first French leader to be reelected in 20 years.
European investors had worried Le Pen could pull off a surprise victory that would have shocked markets.
“Macron’s election delivers continuity and a degree of certainty for the French economy and, crucially, the wider political dynamics in Europe,” UBS economist Dean Turner told clients.
But traders showed little relief on Monday, prioritizing fears about economic growth — particularly in China — and whether central banks could yank pandemic-era support sooner than expected to fight inflation.
Europe’s STOXX 600 index dropped 2% in early trading. France’s CAC 40 fell 2.3%. The euro strengthened when markets opened in Asia but has since pulled back.
Looking ahead: Attention now turns to parliamentary elections in June, which could determine Macron’s ability to advance his agenda.
“Without a majority in the assembly, Macron cannot carry through his ambitious plans for pension and further employment-law reform and his energy and environmental policies, including building a new generation of nuclear power stations,” Mujtaba Rahman, managing director for Europe at Eurasia Group, wrote in a research note.
Macron’s attempts at pension reform caused huge public protests in 2019. As the cost of living rises in France, fueling discontent, selling an increase in the country’s retirement age could prove just as difficult now.
Money is leaving China at a rapid clip
Investors are racing out of China as a cocktail of political and business risks — and rising interest rates elsewhere — make the world’s second biggest economy a less attractive place to keep their money, my CNN Business colleague Laura He reports.
China witnessed $17.5 billion worth of portfolio outflows last month, an all-time high, according to data from the Institute of International Finance. The US-based trade association called this capital flight by overseas investors “unprecedented,” especially since there were no similar outflows from other emerging markets during the period.
The outflows included $11.2 billion in bonds, while the rest was in stocks.
Data from the Chinese government also showed a record bond-market retreat by foreign investors in recent months. Overseas investors offloaded a net 35 billion yuan ($5.5 billion) of Chinese government bonds in February, the largest monthly reduction on record, according to China Central Depository and Clearing. The sell-off accelerated in March, hitting a new high of 52 billion yuan ($8.1 billion).
“China’s support for the Russian invasion of Ukraine was clearly the catalyst for capital to leave China,” said George Magnus, an associate at the China Centre at Oxford University and former chief economist for UBS.
China and Russia proclaimed in February, before the war, that their friendship had “no limits.” Now, with sanctions from all over the world slamming Russia’s economy, Beijing has refused to condemn the invasion, seeking to portray itself as a neutral actor and blaming the situation on the United States.
That’s not all: Investors are also concerned about China’s growth as the country enacts harsh lockdowns to stop the spread of Covid-19. Additionally, the United States has started hiking interest rates, pushing up bond yields. That makes Treasuries look more attractive — especially since China’s central bank is heading in the other direction, easing policy to prop up the economy.
Coca-Cola (KO) reports results before US markets open. PepsiCo (PEP) and Whirlpool (WHR) follow after the close.
Coming tomorrow: Earnings from Google’s Alphabet (GOOGL), 3M (MMM), General Electric (GE) and Chipotle (CMG).
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