Activists score a “great win” when corporations publicly announce a strategic review for a portfolio company, according to Goldman, Sachs & Co. (GS) COO of activism and shareholder advisory Pam Codo-Lotti.

“This makes it look like the activist is able to influence outcomes, and that matters a lot for activists,” Codo-Lotti told the Activist Investing Today podcast.

In a conversation that also focused on stock buybacks, dividends and activism’s global focus, the activism defense banker explained why a public auction for a portfolio company could lead to a variety of M&A outcomes.

“Publicly announcing a potential breakup puts parts of a company in play. That is potential upside for activists,” she said. “We do a lot of these separations. After announcing a potential separation, companies routinely receive M&A interest in SpinCo, RemainCo or WholeCo. A separation auction can turn into a sale of the whole company. That’s great upside for activists.”

Overall, she acknowledged that portfolio simplification might make sense. “There is a point where portfolio diversification turns from a good thing to a bad thing, and that happens when diversification turns into excessive complexity,” she told AIT. “When that happens, narrowing the portfolio can be a catalyst to create value for shareholders.”

Companies operating in sectors where peers are performing better and trading at higher multiples, or those who have units with no obvious synergies, could be targets for an activist’s push for divestitures, she said. A company could be targeted if its peers are simplifying their portfolios but it isn’t. “There is a question of why other companies are doing it and not this company,” she said.

Check out the podcast with Pam Codo-Lotti here:

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