The Activist Investor Blog
Activist Investing White Papers
April 22, 2014
recently asserted that Carl Icahn failed to win other shareholders
to his eBay project because he did not publish a comprehensive
analysis supporting his PayPal spinoff idea.
investors ask us for advice about these analyses for one or another
portfolio company. We certainly have read our share of white papers, too.
So, we thought
it would help to set forth some thoughts about activist investing white
What is the white paper?
It makes the
case for change at a portfolio company, and bring together all of an
investor’s ideas and analysis for the company. It can run to over 300
pages, although around 50-100 pages is more typical.
We’ve seen them
the activist investor
financial analysis, with
past and forecast performance
Barington Capital and
Starboard Value put together for their work at Darden exemplify the
genre. Starboard also put together a good example for their project at
white paper will address a specific subject, such as Starboard’s
analysis of real estate at Darden.
Nelson Peltz at
Trian seems to specialize in white papers, such as his analysis of
Pepsi. In fact, Trian as a separate website devoted to the subject,
trianwhitepapers.com. Bill Ackman at Pershing Square also likes them,
multiple ones for Herbalife, among other portfolio companies (although
we exclude Herbalife from the ranks of activist investments).
investors aren’t the only ones who can write white papers. In response to
Dan Loeb (Third Point) and
his takedown of Sotheby’s, the company came back with it’s own
harsh critique of Loeb’s past investments and BoD work. Third Point
also set up the first cousin of investor white papers, an investor website
with all sorts of other information about the situation. (Earlier, we
highlighted investor websites.)
Thoughts on effective white papers
have multiple audiences. Least importantly, they form the basis of
discussions with company leadership. CEOs and BoDs don’t really take
seriously investor ideas anyway, least of all from an activist with a
small percentage of shares. Yet, sharing your analysis, critique, and
plans with the company does show good faith in wanting to add value.
see the white paper:
investors may send a copy to management.
render opinions only after each side has seen the others’ materials
You’ll need to
file each version as proxy materials.
So, develop the
document expecting fully that the CEO and BoD will read it.
persuading management, white papers really seek to
persuade other investors to support an activist’s thesis and plan. So,
activists use them in meetings with other shareholders, and in proxy
materials that all shareholders will see. The presentation thus answers
key questions and addresses concerns and objections from other large
In addition to
other shareholders, activists use white papers for presentations to proxy
advisors (ISS and Glass Lewis). You might need to
adapt the presentation to individual advisors’ practices and
We’ve heard of
investment banks preparing white papers for investors.
Houlihan Lokey appears to have the largest practice, although Moelis
also does this. While you might delegate the dirty work of compiling data,
running models, and writing and rewriting endless pages, in the end you
need to own the work.
Why do it?
Who reads these
300 page manifestos, anyway?
We know that at
least a few shareholders do. And, the proxy advisors always read them
thoroughly. But, even the biggest shareholders might not have time to
plough through, critically, your finely-crafted assessment.
doesn’t really matter who actually reads it. But, it matters that you’ve
put the time, energy, and thought into your case for the company, and that
others know it. Other shareholders might not read the white paper. They do
want to know that the shareholder that wants to put directors on the BoD,
or restructure the balance sheet, or break up the company, has enough to
say, and thought about it it enough, that it takes 300 pages to say it.
2008-2014 Michael R. Levin - all rights reserved.