May 2, 2018 / 10:02 PM / a year ago

Goldman's Waldron says U.S. tax reform boosts shareholder activism

LOS ANGELES (Reuters) - 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 (GS.N) investment banker said this week.

John Waldron, co-head of the Investment Banking Division, Goldman Sachs, speaks at the Milken Institute 21st Global Conference in Beverly Hills, California, U.S., May 1, 2018. REUTERS/Mike Blake

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 (LAZ.N).

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 (AAPL.O) earlier this week promised shareholders $100 billion in additional stock buybacks, the starkest example yet of how companies are using the mountain of overseas cash suddenly freed up by the tax overhaul.

Other companies announcing plans to return cash to shareholders recently include Facebook Inc (FB.O), AbbVie Inc (ABBV.N) and Broadcom Inc (AVGO.O).

Activist shareholders are paying attention. TCI Fund Asset Management said in March that Altaba Inc (AABA.O), a company with a market capitalization of $57 billion that used to be a part of Yahoo Inc and holds large stakes in Alibaba Group Holdings (BABA.N) and Yahoo Japan Corp (4689.T), should take advantage of U.S. tax cuts and liquidate its assets.

“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.

(This story has been refiled to fix cash repatriation tax reference in paragraph five.)

Reporting by Liana B. Baker in Los Angeles; Editing by Cynthia Osterman

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