Activist Funds Loaded With Capital Augur Dealmaking Surge
By David Welch & Serena Saitto - Jan 17, 2013 6:39 PM ET
Ralcorp Holdings Inc. (RAH)
refused to accept a takeover bid from rival ConAgra Foods Inc. in 2011. A
year later, 39-year-old activist investor Keith Meister stepped in.
On Aug. 23
Meister, a onetime Carl Icahn protege, disclosed that he had accumulated a
5.1 percent stake in St. Louis-based Ralcorp, hoping to restart talks with
ConAgra. Just three months later Ralcorp, now headed by a new chairman and
with Meister on the board, agreed to ConAgra’s $5 billion bid. Ralcorp
Chief Executive Officer Kevin Hunt said the deal provided “compelling cash
value to shareholders.”
activist fund Corvex Management LP turned a quick $90 million on its $189
million investment, or 48 percent, according to Bloomberg calculations
based on company filings. The win underscored how activists are shaking
loose deals and making big returns, auguring a rise in mergers and
acquisitions this year. Meister declined to comment.
“We have seen
a dramatic increase in the level of shareholder activism,” said
Patrick Ramsey, co-head of
Americas M&A at Bank of America Corp., who predicts that activism will
contribute to an increase in M&A this year.
cheap and share prices sluggish, shareholder activists last year started
219 campaigns against companies they deemed undervalued, a 22 percent
increase from 2011 and the most since 2008, according to data from
Norwalk, Connecticut-based Factset Research Systems.
dollars has meant more activism. Facing few high-yield alternatives,
investors including institutional funds poured about $3.8 billion into
activist funds after returns in 2012, compared with $1.8 billion in 2010,
according to Hedge Fund Research, a Chicago-based firm.
“We wanted to
consider all options due to the low return environment,” said Aeisha
Mastagni, an investment officer for the California State Teachers’
Retirement System. It has a $3 billion portfolio of activist investments
among its total of $154.3 billion under management. The
California Public Employees’
Retirement System is putting $1.25 billion over the next five
years into a fund of its own, said senior portfolio manager
been rewarded. While the Standard & Poor’s 500 Index rose 13 percent in
2012, activist funds jumped 25 percent, according to Mazin Jadallah, CEO
of San Francisco-based money management firm AlphaClone, which tracks
M&A could use
a boost from the activists. Dealmaking declined 10 percent globally in
2012 to $2.19 trillion, buoyed only by a strong fourth quarter, according
to data compiled by Bloomberg.
investors, mostly hedge fund managers, were dubbed corporate raiders amid
the hostile takeovers of the 1980s. They tend to buy at least 5 percent of
a company’s stock and flag their status by disclosing their holding in a
13D filing with the Securities and Exchange Commission.
hedge funds try their hand
at activist investing, only a few focus on it as their core strategy,
including Icahn, Starboard Value LP, Dan Loeb’s Third Point LLC and
ValueAct Capital Partners LP.
amounts of money can be made through activism, but you have to have a
large amount of long-term committed capital to be successful,” billionaire
Carl Icahn said in a phone
The wake of
the financial crisis has left “a substantial price gap between sellers and
buyers,” said Gideon King, CEO of Loeb Capital Management, a New
York-based hedge fund. “That’s one of the reasons why you see a return of
activists who can push the parties to the bargaining table to try to
narrow this chasm.”
technology companies laden with cash are an especially ripe target, said
Gene Sykes, Goldman Sachs Group Inc.’s global head of mergers and
hedge-fund manager Elliott Management Corp. has put
BMC Software Inc. (BMC) on
the block, and it might be taken private this year, according to three
people familiar with the situation. Last year it attracted interest from
private equity firms including KKR & Co., TPG Capital and Bain Capital
LLC, people familiar with the situation said Oct. 22. Elliott, which owns
8.1 percent of Houston-based BMC, will push again this year for a sale of
the software maker, said one of the people, who asked not to be identified
because the situation is private.
Mark Stouse, a
spokesman for BMC, and
Peter Truell, a spokesman
for Elliott, declined to comment.
Jeffrey Ubben, co-founder of ValueAct, moved against industrial equipment
maker Gardner Denver Inc. after it fired its CEO last July. The fund
bought a 5 percent stake for $64.5 million and demanded the board sell the
company, citing the lack of strong management. The Wayne,
Pennsylvania-based company is talking with several private-equity firms,
following the collapse of a deal with SPX Corp. in December.
Bill Ackman’s Pershing
Square Capital Management LP are now jousting over
Herbalife Ltd. (HLF), a
high-profile battle that may put the
vitamin distributor in play
for a takeover even though it’s not a traditional activist fight. Calling
the company a pyramid scheme, Ackman has shorted the stock while Loeb has
bought an 8.2 percent stake, betting that Ackman is wrong -- as the Grand
Cayman-based company has said.
could push Herbalife into the hands of a private-equity firm, said Robert
Chapman, founder of hedge fund Chapman Capital Partners. His fund placed
“a monster long bet” on the company, he wrote in a letter rejecting
Ackman’s pyramid argument.
“There is far
more likelihood of another LBO of Herbalife than any other headline risk,”
Loeb moved in
a traditional activist way on Jan. 9 when he bought a stake in Morgan
Stanley and urged the bank to address its fixed-income unit and make board
changes. He previously pushed for an overhaul at Yahoo! Inc. and won the
ouster of Chairman
Some of the
activists are claiming too much credit when they buy in to companies that
are already ripe to be sold, said Andrew Bednar, a partner at
New York advisory firm
Perella Weinberg Partners, which defends companies against shareholder
often not a cause and effect between activist action and management
decisions,” Bednar said.
Whitworth, co-founder of activist fund Relational Investors LLC,
responded: “It’s true that management has often heard similar suggestions
from bankers, investors or analysts, but an amazing number suffer from the
ready, aim, aim, aim syndrome.”
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reporters on this story:
David Welch in New York at
To contact the
editors responsible for this story: Jeffrey McCracken at
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