U.S. companies with more cash on their balance sheets thanks to tax reform are coming under greater scrutiny from activist investors, a top Goldman Sachs Group Inc
Some 73 campaigns by U.S. and European activist shareholders were launched in the first quarter of 2018 against the boards of companies with market capitalization exceeding $500 million, the highest quarter on record, according to data from Lazard Ltd
John Waldron, the co-head of Goldman Sachs investment bank division, said at the annual Milken Institute Global Conference that U.S. tax reform was a driver behind the rise in such campaigns.
"There`s excess cash for most companies laying on the balance sheet and shareholders are going to press for answers of what they are going to do with it," Waldron told the Milken Conference in Los Angeles.
Sweeping tax reform was U.S. President Donald Trump`s first major legislative triumph since he took office in January 2017. Among the changes were a lowering of the headline corporate income tax rate from 35 percent to 21 percent and the introduction of a one-time mandatory cash repatriation tax.
Waldron, whose bank advises companies on how to defend themselves against activist investors, said that a big question on his clients` minds is whether shareholders are going to give companies the time they need to decide how to deploy cash.
"Is pressure going to mount to come out with a capital allocation plan that`s fairly defined? How much is going into the business, how much is going to return capital to shareholders and how much will go to M&A?," Waldron said.
Share buybacks have been a popular tool among companies to return money to impatient investors. For example, Apple Inc
Other companies announcing plans to return cash to shareholders recently include Facebook Inc
Activist shareholders are paying attention. TCI Fund Asset Management said in March that Altaba Inc
"We`re seeing more (activist shareholder) campaigns this year than in the past three years," Waldron said. The proliferation of activist campaigns is like "throwing gasoline on the fire," boosting mergers and acquisitions, Waldron added.
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