Starbucks & Elliott bury the hatchet

Typically, investors buy shares in a company because they believe in the firm’s strategy, leadership, and vision for the future.

But what about when investors are buying shares because they hate how the company operates?

That’s the question that Starbucks executives had to answer after activist investing firm Elliot Investment Management set its sights on a board seat, taking a stake in the coffee giant last month.

Elliott Management, which has roughly $65 billion in assets, has amassed a position in Starbucks worth about $2 billion, according to CNBC, and the firm has floated various options for improving the beleaguered company’s performance. The home of the Frappucino has fallen on hard times this year as it shifts more toward take-out orders and faces slowing demand internationally. The chain reported in April that same-store sales had fallen for the first time in nearly three years.

After months of internal discussions, CNBC reported that Starbucks’ board of directors and Elliot are in the final stages of talks to end the corporate feud. The discussions could result in Jesse Cohn, one of Elliot’s managing partners, becoming a board member at Starbucks, with current Starbucks CEO Laxman Narasimhan being allowed to stay at the helm. Other parts of the agreement would include a potential board expansion and governance improvements. However, nothing is finalized yet.

So what actually are activist investors?

Activist investors are investment firms (usually hedge funds) that target and invest in companies, and then lobby the company they invested in to switch up how they do business.

The goals of activist investors can vary from policy changes, like pushing an oil company to streamline its carbon emissions goals, to a focus on improving the business and juicing stock market returns, like trying to oust a current chief executive.

Usually, activist investors are hedge funds that buy a minority stake in a firm, and then use either a public or internal pressure campaign to achieve their aims. If activist investors can’t use the power of persuasion to reach executives, they often opt to conduct a proxy war for seats on a company’s board of directors. In the case of Elliot and Starbucks, it looks like they may have been successful.—LB