Long-term investors are losing patience with companies that fail to maximize value as the slowing recovery whittles away returns, with some calling for greater financial rewards for loyalty or takeovers that put growth targets back on course.

The current earnings season -- expected to reveal a number of companies missing forecasts because of the still stuttering economy -- could be the catalyst for more investors to demand changes that will push up the share prices in the groups they own.

Bankers say shareholder activism is a resurgent theme in Europe that will affect companies where investors perceive weak performance, acquisition or divestment opportunities, or surplus cash sitting on the balance sheet.

Corporates have had an easy time because the rate of recovery was rapid until recently, said Wilhelm Schulz, head of European M&A at Citigroup .

With the slowdown, many companies may not hit second- quarter earnings targets and there could be more pressure from shareholders to return cash or put money to work through M&A in the third and fourth quarter because (companies may) have not delivered operationally.

Investors put up hefty cash sums for the bumper rights issues that steered European companies though the downturn, and then lost out when firms cut dividends. Some are therefore increasingly looking for signs their money will be spent well.

I expect we'll be having more conversations with management teams about how they intend to use cash building up on the balance sheet; what the investment opportunities are, to either expand operations or other ways to employ that cash, said Richard Black, manager of Legal & General Investment Management's UK Equity Income fund.

We're not asking companies to take on significant financial risk, but at the same time, cash sitting on your balance sheet earning basically nothing, can be put to work more effectively. he said.

Investors will be encouraged by two prominent examples of companies already returning cash on Friday.

BSkyB said on Friday it will hand out 1 billion pounds to placate investors after failure of the News Corp bid .

Vodafone also opted to give investors 2 billion pounds ($3.3 billion) following a windfall dividend from a co-owned U.S. unit.

ACQUISITIONS

Others are going further, targeting stakes in companies they view as acquisition targets in the hope of collecting a windfall when a deal emerges.

It's a very good time to be owning companies you think could be potential acquisition targets, said Alex Wright, manager of the Fidelity UK Opportunities Fund.

Prospects for organic growth are not particularly good across the whole of Europe and the UK. If the top line growth is not that good what else can (companies) do to create value?

Wright was a shareholder in Sportingbet, which received an approach in June by bookmaker Ladbrokes .

Other managers are reviewing positions in Charter International , the British engineering firm fending off the attentions of industrial turnaround specialist Melrose .

Aviva Investors took the unusual step of breaking cover this week, calling on Charter -- in which it holds a 5.2 percent stake -- to open its books to an 840 pence or 1.4 billion offer from Melrose.

Melrose said it might be willing to raise the offer, which Aviva described as a compelling proposition in a recent press report, if due diligence showed that it had undervalued its reluctant target.

Long-only investors wary of the spotlight have the option of standing behind activist funds well used to implementing attack themes in the glare of the media. While not yet back to the pre-crisis heyday -- when hedge fund TCI's attack on ABN AMRO in 2007 helped trigger the bank's sale -- investor Edward Bramson's recent move on F&C and Elliott Advisors' call for the sale of Actelion imply growing confidence among activists.

Bramson's vehicle Sherborne Investors ousted F&C Asset Management's chairman and was backed from an early stage by Aviva Investors , F&C's third largest shareholder.

Long-only investors tend to make their thoughts known to management in private. They generally don't act as the public catalyst for change, but if they feel they are not being listened to they may get behind an activist that fulfills that role, said Andrew Cowper, a managing director in M&A at UBS.

(Editing by Sinead Cruise)

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