Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

appraisal rights for intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

For graphs of specific company voting for the past 5 years, see

Shareholder Support Rankings

 

 

 

 

Sources: The Wall Street Journal MoneyBeat, August 19, 2013 commentary and video

THE WALL STREET JOURNAL  |

  MARKETS & FINANCE

 

 


2:51 pm
Aug 19, 2013

Current Account

Activist Investors: A Roar or a Bark?

 

By Francesco Guerrera
 

Can a lion be confused with a dog? In Luohe, China, the answer is a resolute “no.” Visitors at the local zoo weren’t impressed last week when they found a Tibetan mastiff in the cage earmarked for the king of the jungle.

 

When it comes to activist investors, though, the situation is less clear-cut. On Wall Street, this breed of hedge-fund manager engenders extreme reactions. Some lionize them as intrepid champions of shareholders’ rights in the face of corporate ineptitude. Others accuse them of terrier-like aggression, snapping at executives’ heels with short-term demands that end up harming companies.

The debate has taken on new urgency as high-profile activists such as Carl Icahn, William Ackman and Daniel Loeb have taken on the likes of Apple Inc., J.C. Penney Co. and Sony Corp.

Investors and corporate executives are watching, because activists punch above their weight. They control just over $84 billion in assets, according to HFR, a drop in the bucket when compared with the trillions of dollars managed by passive funds. But activists’ campaigns can often move share prices because of their following in the market.

Mr. Icahn’s tweet last Tuesday saying he had taken a large position in Apple, sent its shares up nearly 5% on the day. That added some $20 billion to the company’s market value, while, as The Wall Street Journal reported, Mr. Icahn owns a stake of around $1.5 billion.

Are such share-price moves—and the passions they generate among supporters and critics—justified?

 

http://s.wsj.net/public/resources/images/OB-YP013_0819gu_E_20130819151647.jpg

̶̶  Tibetan mastiffs - Associated Press

 

Activism investing is just another way to try to beat the market by picking undervalued stocks. The difference is that activists don’t wait for the market to recognize a company’s value, they try to make things happen on their own terms.

Current conditions are almost ideal for activists. With interest rates so low and stocks at record highs, pension funds are desperate for ways to beat the market; companies are sitting on record piles of cash earning measly returns; and since the financial crisis, boards and executives have to be more responsive to outsiders.

“Right now there is a convergence of factors that are making conditions very ripe for all styles of activism,” says Clifton Robbins, chief executive of Blue Harbour Group LP, an activist fund that eschews boardroom fights.

Others argue that they fulfill a market need. “Activism is not a cure-all for every situation,” Mr. Ackman told me last week. “The vast majority of capital in the world is passive. These investors control the votes. If they think an activist is wrong, they won’t support him. But at least they have a choice.”

On this point, I found rare common ground between Mr. Ackman and Mr. Icahn, despite their recent squabbles over the nutritional-supplement maker Herbalife Ltd. “The big thing we do is we make the CEO and management accountable,” Mr. Icahn said. “[Activists] must do the job that, with exceptions, boards are not doing.”

Mr. Icahn and his peers aren’t getting much gratitude from boardrooms for this work.

The veteran corporate adviser Martin Lipton, for one, can’t stand activists’ I-want-it-all-and-I-want-it-now attitude.

“It’s not good for companies to be subjected to short-term pressure and it’s not good for the economy as a whole,” said Mr. Lipton, a founding partner of Wachtell, Lipton, Rosen & Katz. “It deters investments and in the long-term it reduces the rate of growth of GDP.” A recent academic study appears to contradict that assertion but Mr. Lipton’s views are widely shared in corporate America.

Which is exactly the problem in the eyes of a seasoned activist such as Ralph Whitworth. “The people who are saying that are usually just saying: ‘Hey, give me more time to make the same mistakes,’ ” Mr. Whitworth, a founder of Relational Investors LLC, said. “This is what I always tell these people: We bought the stock from your long-term shareholders. And if I am here, I am the longest-term shareholder you’ve got.”

Chris Young, who heads a Credit Suisse AG unit that advises companies against activists, maintains that boards and executives should be ready before Mr. Whitworth & Co. come knocking. “It’s the old Boy Scout’s motto: ‘Be prepared,’ ” he said. “Your defense is performance and preparation—understanding where your weaknesses are and how an activist might come at you”

Paradoxically, activists’ long-term performance has been superior to their short-term one. Since 2005, the activist hedge-fund index compiled by HFR has done much better than the S&P 500 (including dividends). This year, however, the two are almost on level terms.

Unfortunately, most individual investors don’t get to buy into activists’ funds and are relegated to aping their moves after they are announced. And that is where the perils lie.

Because of the time lag of regulatory filings, those who buy after an official announcement are almost certain to have missed out on any big share-price movement. At that point, the best strategy is to hold the stock and ride with the activist fund, hoping its proposals will work out for the company.

Or, put another way, hope that what you hear from the activist’s camp is a roar and not a bark.

Francesco Guerrera is The Wall Street Journal’s financial editor. Write to him at:currentaccount@wsj.com and follow him on Twitter: @guerreraf72.

Related: Francesco Guerrera has details on The News Hub.

Markets

Activist Investors: A Roar or a Bark?

The debate has about activist investors taken on new urgency as high-profile activists such as Carl Icahn, William Ackman and Daniel Loeb have targeted the likes of Apple, J.C. Penney and Sony. Photo: AP.

 

Copyright ©2013 Dow Jones & Company, Inc. All Rights Reserved.

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.