Activist investors bump into each other
Soyoung Kim and
Mon Mar 17, 2014 7:15am EDT
activist-investor Carl Icahn gives an interview on FOX Business
Network's Neil Cavuto show in New York February 11, 2014.
March 17 (Reuters) - When Barington Capital Group in October reported a
stake of more than 2 percent in Darden Restaurants Inc (DRI.N) with a vow
to shake up the company, another investment firm was caught off guard.
Value LP, which takes stakes in companies that it perceives to be
undervalued with the hopes of making changes, had studied the restaurant
chain for six months as a potential target and was waiting for the right
moment to pounce.
of Barington's investment sent stocks sharply higher that month, forcing
Starboard to wait another two months until shares fell back. In December,
it went public with its 5.6 percent position just after Darden reported
months prior to that, an activist fund was preparing to go public with
proposals to shake up Aeropostale Inc (ARO.N) and was amassing a stake,
only to learn that Sycamore Partners had taken an 8 percent stake in the
teen clothing retailer.
Sycamore's disclosure sent stocks surging nearly 20 percent on the day of
the announcement, making it expensive for the activist fund to buy more
shares. The fund, which asked not to be identified for this article,
passed on a campaign.
examples show how investors are increasingly bumping into one another in
corporate campaigns, as more funds are starting to follow the playbook of
aggressive shareholders such as Carl Icahn and Bill Ackman, who use their
stock positions to urge companies to sell, break up, buy back shares or
and their lawyers say that it's getting tougher to find easy targets as
investors are chasing the same "low-hanging fruit" - companies that have
poor corporate governance or performance and are vulnerable to calls for
only so many companies that are undervalued and a lot of people are
looking at the same screen and the same performance criteria," said Steve
Wolosky, a partner at law firm Olshan Frome Wolosky LLP.
Studzinski, who leads the advisory arm of Blackstone Group LP (BX.N),
estimates that almost 20 percent of the S&P 500 companies have already had
some type of activist involvement.
strength of stock markets -- the S&P rose 30 percent in 2013 -- means
there are fewer cheap stocks to buy. Moreover, companies, realizing that
it's too late when activists show up on their doorsteps, are proactively
taking steps such as breaking up the company or boosting buybacks. That
removes some potential for activist intervention, lawyers and bankers say.
that with fewer obvious targets where activists can get in and out for a
quick fix, activists will inevitably go after some of the
better-performing companies in order to deploy capital. Activist returns,
which handily outperformed those of traditional hedge funds in recent
years, may take a hit if complicated corporate attacks start to produce
companies themselves, the consequence of multiple agitators could mean a
more costly and time-consuming battle, a distraction from running
day-to-day operations, as well as greater fees for legal and defense
tough message for a board of a management team to deny something when
multiple sophisticated investors are saying 'this is what the problem is
and this is why the market is valuing you incorrectly'," said Philip
Larrieu, a senior investment officer at the California State Teachers
Retirement System (CalSTRS).
addition to Darden, others who have fended off at least two activist
investors in the stock include Juniper Networks Inc (JNPR.N), where both
Elliott Management Corp and Jana Partners LLC reported stakes, and
Sotheby's (BID.N) which is under the scrutiny of Third Point LLC and
Marcato Capital Management LP.
Corp (ELX.N) and Compuware Corp (CPWR.O) have three activist funds
involved in the stock. In the last two weeks alone, at least three U.S.
companies -- Aarons Inc (AAN.N), BJ's Restaurants Inc (BJRI.O) and ALCO
Stores Inc (ALCS.O) -- saw two different investor groups nominate
competing slates to their boards.
Competition for the same targets is spurred in large part by the sheer
number of investors increasingly willing to use activism and the
ever-growing warchest that activist funds can tap into.
activist hedge funds added nearly $5.3 billion in net asset inflows, up
sharply from $2.9 billion in the previous year and the most since 2006,
according to data compiled by Hedge Fund Research.
assets in activist funds — a small slice of all hedge-funds assets — stood
at $93 billion at the end of 2013, an all-time high and up 42 percent from
the prior year, the data show.
that rush of money is performance chasing. On average, the roughly 60
funds tracked by HFR that specialize in activist investing returned 16.6
percent in 2013. While that is still less than the Standard & Poor's jump
of roughly 30 percent, it is far better than the average hedge fund, which
returned 9.3 percent, HFR data showed.
trends have supported a new crop of investors who left funds like Icahn
Enterprises LP and Ackman's Pershing Square Capital Management to set up
their own shops in recent years.
crowding the field, funds that have historically preferred to stay under
the radar are choosing to go public with their campaigns.
year, hedge fund TPG-Axon Capital led a successful proxy fight against
SandRidge Energy Corp (SD.N), its only second such public fight in its
8-year history, and First Manhattan Co won a proxy battle at drugmaker
Vivus Inc (VVUS.O), which marked one of its only two forays into activism
in nearly 50 years.
Bajaj, managing principal at activist investment firm Altai Capital,
thinks having multiple funds with similar perspectives involved in the
same company can sometimes help because that gives them a larger
percentage of shareholder base that has an agenda of change.
times, investors are fighting it out to the detriment of one another. In
February, investment firm Voce Capital Management LLC, which was seeking
to nominate four directors to ConMed Corp (CNMD.O), lambasted the surgical
device maker for giving two board seats to another activist investor,
Coppersmith Capital, instead.
as far as questioning the qualification of the Coopersmith directors. It
pointed to the directors' track record including their unsuccessful
attempt at gaining board seats at Alere Inc (ALR.N) last year, saying
"serious and troubling" questions were raised about each candidate.
companies have two different activists potentially to try to satisfy, and
those two activists may have different or even competing objectives. If
you satisfy one activist and settle, the other one could keep coming at
you," said Marc Weingarten, head of the activism practice at law firm
Schulte Roth & Zabel LLP.
Blackstone's Studzinski said that if activists position their campaign in
a way where they will not step on each other's toes, "one plus one could
Keith Meister, Carl Icahn's one time right hand man, set his sights on
shaking up CommonWealth REIT (CWH.N) a year ago, he didn't know that he
would soon have company in the form of other hedge funds who were equally
ready to fight over the real estate investment trust's structure and high
fees being paid to its controlling family.
Corvex Management, working with Related Fund Management, laid out its
requests and a threat to remove the board in a regulatory filing on
February 26, 2013. On the same day Luxor Capital Group, already an
investor, cheered Corvex's actions in a news release.
later Richard Perry's hedge fund, an occasional activist, jumped in with
its own 13-D filing, signaling activist intentions. And by the end of
June, Corvex had rounded up Luxor, Perry and Marcato Capital Management to
act as a group, according to a regulatory filing.
coordinated approach among activists could add pressures on companies to
make changes, potentially boosting returns for all shareholders.
could "all bring their investing perspective, providing a richer menu of
intelligence and perspective," Studzinski said. "But they could also
discredit each other's argument and one plus one could equal one half."
institutional investors who invest in activist funds say the increased
crowdedness could result in a shakeout.
activists may decide that this strategy is harder than it looks and that
it's not the right strategy for them to pursue," said California State
Teachers Retirement System's Larrieu. "It's a lot of campaigning, making
press calls, presenting to investors and answering questions -- it's all a
lot harder than just running a portfolio."
(Reporting by Soyoung Kim and Olivia Oran, additional reporting by Nicola
Leske in New York and
in Boston, editing by Ross Colvin)