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Behind the Push for REIT Spinoffs: Do Activist Investors Do More Harm than Good?


Activist investors have made headlines this year, as big-name hedge funds players buy big stakes in retailers, such as Macy's and Sears, and then push for big changes like REIT spinoffs.

For retailers specifically, the idea is to unlock value, but others haven't been so gung-ho on the idea, suggesting companies like Macy's should "stick to their knitting." Reason being, most don't understand activism's long-term effectWSJ data reveals.

"We definitely do not believe that all activism today is a good or a catchall," Carl Icahn says, adding there are bad activists out there. "All they want to do is get in and rock the boat and make a quick trade."

Activist investors have been stirring the REIT pot for some time, forcing an IRS crackdown on recent REIT spinoffs pushed by vocal investors. Meanwhile, Presidential candidate Hillary Clinton has called for tax reforms, targeting "hit-and-run" activists. 

Interestingly enough, companies confronted by activist investors do outperform industry peers, but not by much. According to the data, median campaign beat peers by just under five percentage points.

Timing may also be key in judging an activist's intentions, says Avinash Mehrotra, co-head of Goldman Sachs' activism defense and shareholder advisory group. Are they in it for the long haul? Or just looking for a quick exit? "The focus is changing to whether the idea is good or bad," he says. [WSJ]