NEW YORK — Technology companies increasingly are becoming the target of activist shareholders who push them to make strategic moves that can hurt corporate credit strength, according to a report released on Friday.
The study, from Moody's Investors Service, found that the potential for activists to focus on the technology sector is rising as the industry matures and aggressive hedge funds buy up sizable positions after company founders sell their large stakes.
One of the most high-profile targets has been Motorola Inc., which said on Thursday it was considering breaking off its loss-making mobile phone unit, in an apparent concession to demands from billionaire investor Carl Icahn.
“Activist investors are paying increased and disproportionate attention to the technology space,” the Moody's Corp. ratings unit said in its report.
Moody's said that when companies accede to activists' demands, such as launching big share buybacks or taking on pricey acquisitions, that can erode credit quality and hurt bondholders as well as long-term shareowners.
When companies take aggressive moves like these, it can lead to downgrades of their corporate debt, Moody's said.
The technology sector has not traditionally been considered attractive to activist investors because the industry is cyclical and complex, but that is rapidly changing, Moody's said.
It cited data from FactSet Research Systems Inc. showing that technology company proxy fights launched by activists doubled to 22 last year.
Many technology companies are ripe targets for activists after adopting more conservative fiscal policies following the bursting of the Internet stock bubble in 2000, Moody's also found.
It said these companies now have stronger balance sheets and higher cash positions, leading activist investors to press management to return excess cash to stakeholders.
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