Question

Why would an activist investor want a company to “slim down”?

Answer 1

Before moving to the reason of "Slim Down", we should know who is an "Activist Investor" and what is "Slim Down"

Normally activist investors are those who holds a significant stake in company. So we can say they a greater interest and influence in the company compared to retail investors. These investors invest a big chunk of money. Therefore, a small news or rumor can jeopardize their interest. They can suffer heave loss.

Now slimming down means reducing cost of company expenditures. For an example there are 1000 employees in a company. But all the operations can be done by 800 employees easily. In that case company should slim down and reduce its cost by removing ideal employees or employees who underperform.

We can take another example. If a company has 3 divisions. One of the division is continuously occurring loss and not performing well in the industry then it is wise to stop that division and focus on divisions which are performing well and which have more opportunities in future. This is also known as “Slim down”.

So basically an activist investor will want the company to slim down as it will have direct impact on profitability of the company. If company’s profit will increase, its share price will also increase. In that way the activist investors will protect their interest and money in the company.