January 27, 2014 5:33 pm
Elliott makes waves with activist
By Ed Hammond and Stephen
Foley in New York
Elliott Management, the US hedge fund, timed its recent attack on
Shaygan Kheradpir, the technology company’s new chief executive, had been in
the job less than a fortnight when Elliott revealed it owned
6.2 per cent of
Juniper’s shares and wanted changes in the way it was managed. Mr
Kheradpir had barely had time to organise his new desk, let alone lay out
his own vision for the business.
The manoeuvre is typical of
company, until recently little known outside the corporate finance world, is
cutting a reputation as an aggressive and adroit activist investor, hungry
to take on businesses across America and Europe.
Elliott, founded by Paul Singer more than 35 years ago, has long been
associated with the more traditional hedge fund practice of distressed debt
Until recently, the company was best known for engaging in a
protracted fight with
the Argentine government over its refusal to accept the terms of
the country’s proposed debt restructuring.
After winning a court order awarding it $1.6bn in Argentine assets, a
subsidiary of Elliott arranged for the seizure of ARA Libertad, a $10m,
100m-long sailing ship that operates as a school vessel in the Argentine
However, the $23bn fund has been allocating more of its resources to
corporate activist situations, in part because those kinds of distressed
debt opportunities have ebbed. Defaults are at record lows and most
companies are presently having little difficulty refinancing.
At the same time, corporate activist investing has proved lucrative at a
time of rising equity markets. According to eVestment, a data provider,
corporate activism was the best-performing
strategy in 2013, as specialist funds returned 19.1 per cent for the year
compared with 9.2 per cent for the hedge fund industry as a whole.
Elliott’s particular brand of activism lacks the effrontery that has made
celebrities of Carl Icahn, Bill Ackman and Daniel Loeb. But in the scope of
its activity, the hedge fund stands out from the pack.
Cohn] made a name for himself by not being afraid to challenge the
status quo of these companies that a lot of outsiders view as being
among the most sophisticated and intelligent businesses~
― Silicon Valley banker
Since the start of 2014, Elliott has taken a stake in Wm Morrison, the
struggling UK grocer, forced a higher price in
of rival drug distributor Celesio, and prompted a reshuffle of the board of
directors at business software group Compuware.
A theme running through the hedge fund’s approach, say its executives, is
“manual labour” – the idea that returns are to be generated by actively
pushing for change, whether that be at a bond issuer that has fallen into
difficulty, or a sovereign issuer that needs to be pressured to treat
creditors better, or at a company with poor operational performance, an
unhealthy balance sheet or weak management, or all three.
Yet, to gain a better perspective of Elliott’s stature among activist
investors, it pays to look to the technology sector.
Led by Jesse Cohn, an energetic 33-year-old who grew up as a self-described
computer programming geek, Elliott has rewritten the playbook for taking on
America’s technology companies. Mr Cohn, who heads the hedge fund’s activism
practice in the US, has turned the insularity of Silicon Valley – the very
characteristic that many investors would regard as a barrier to engendering
sweeping change – into a weapon in the launch of campaigns against 30
companies in eight years.
It is a pre-eminence that was sparked by a chance moment in 2005.
Elliott was weighing the merits of taking a small stake in Enterasys
Networks, a little-known maker of internet routers. The then 25-year-old Mr
Cohn’s interest in technology landed him the responsibility for the
investment. Elliott pressured Enterasys’s management to sell the company to
a private equity buyer, doubling its money in the process. Mr Cohn was
readily given the task of finding more opportunities in the sector.
One Silicon Valley banker, who did not want to be identified, says Mr Cohn
has “made a name for himself by not being afraid to challenge the status quo
of these companies that a lot of outsiders view as being among the most
sophisticated and intelligent businesses”.
The strategy has drawn criticism too.
Elliott’s pursuit of Riverbed, a technology group that it is pushing to sell
itself, has been questioned by some in Silicon Valley as being an
underestimation of a respected board with a willingness to yield.
Even its move on Juniper – which sent shares rallying 8.6 per cent and has
backed by rival activist
fund Jana – has been questioned as being merely an amplification
of the changes the company was already enacting, such as cutting costs and
increasing its dividend.
Whether these, or other criticisms of Elliott’s approach will bring much in
the way of comfort to Mr Kheradpir remains to be seen.