Traditionally, ownership stakes served as the yardstick in figuring odds of a company’s vulnerability to takeovers. Instead, Houston-based firm Rotary Gallop has created a methodology based on an assessment of controlling influences. According to the results of their study, J.C. Penney (NYSE:JCP) Morgan Stanley (NYSE:MS) are the most vulnerable U.S. corporations when it comes to potential takeovers, while Apple (NASDAQ:AAPL) and Wal-mart (NYSE:WMT) were rated most secure.
Rotary Gallop CEO Travis Dirks tried to isolate how much real control shareholders have over a company in this study. Dirks defined control as the ability to sway shareholder votes, as well as how many votes had to be moved for a desired outcome. Rotary Gallop’s system downplays the impact of controlling interests.
Dirks’s team used a “whales vs. sharks” methodology in formulating the results of the study. The higher a company’s Whale Score, the higher the potential for hostile takeovers.
The higher a company’s Shark Score, the more likely a company is to have activist shareholders exert their influence over the board. William Ackman’s influence over J.C. Penney in recent years would be an example of a single investor swaying decisions of the company as a whole…
J.C. Penney has already been cited as a target for a hostile takeover, following the removal of its chief executive, declining revenue and terrible stock performance. J.C. Penney has lost over 50 percent of its stock value since late 2011. As for Morgan Stanley, its chief vulnerability was in the shareholders already holding large interests in the company. The Nasdaq OMX Group (NASDAQ:NDAQ) and Lockheed Martin (NYSE:LMT) were also among the 10 most vulnerable companies.
Rotary Gallop’s system of determining vulnerability could be useful to investors as they size up a company’s overall prospects. In the case of J.C. Penney, the determination would not come as a surprise, while Morgan Stanley would not appear headed for disaster at first glance.
Rotary Gallop looked at nearly every company in the S&P 500 when conducting its research. Walmart and Campbell Soup Company (NYSE:CPB) were two companies appearing on the lists of least vulnerable to both activist investors and large shareholders.
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