Toms Capital manages $4 billion and just became Devon Energy's fifth-largest shareholder. They wrote a letter. The letter says Devon should explore alternatives including a sale. Explore alternatives is Wall Street's way of saying "we're bored and want our money now."
Devon Energy extracts oil from the ground and sells it. Toms Capital bought shares in a company that extracts oil from the ground and sells it. Now Toms wants Devon to stop extracting oil from the ground and selling it so someone else can extract oil from the ground and sell it. This is called activism.
The activist playbook has three moves. Write a letter. Use the phrase "unlock shareholder value." Wait for CNBC to call. Toms nailed all three. They didn't even need to threaten a proxy fight. Just showed up with $4 billion and said "have you considered not being this company anymore?" Devon's board will now spend six months hiring consultants to explain why they should remain Devon Energy instead of becoming a line item in Chevron's quarterly report.
Retail traders will read this headline and think it means Devon's stock is going up. They'll buy calls expiring Friday. By Monday they'll be posting in r/wallstreetbets about how activist investors are actually bad for shareholders. They're correct but for the wrong reasons. Activists are bad for shareholders because they create the illusion that someone with $4 billion knows what they're doing. They don't. They just have $4 billion and a letterhead.
Toms could've saved everyone time and just made a hostile tender offer. Instead they wrote a letter suggesting Devon "explore alternatives." Devon will explore those alternatives the same way you explore getting in shape every January. With great intention and zero follow-through.
The stock moved 2% on the news then gave it all back by lunch because nobody actually cares what Toms Capital thinks Devon should do.
Photo by Invest Europe on Unsplash
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