As if the defense industry did not already face enough uncertainty, a new challenge has emerged to further complicate the plans of corporate executives. Activist investors such as longtime corporate raider Carl Icahn and Relational Investors CEO Ralph Whitworth are pressuring under-performing military contractors to boost shareholder returns even if that means reducing company resilience over the long run. The latest episode in this emerging trend came in late June, when Icahn disclosed he had purchased a 9.5 percent stake in beleaguered military truck-maker Oshkosh Corporation and would seek talks with management to boost shareholder returns. Whitworth of Relational Investors had previously pressed ITT Corporation to unload its military electronics business, and now is targeting L-3 Communications, having become its biggest shareholder. There’s no telling where the surge of shareholder activism might lead, because defense companies are facing tough times and frustrated investors will be more receptive to calls for change. I have written a commentary on the subject for Forbes that can be found here.
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