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Activist professionals adapt old stockbroker's "buying opportunity" pitch to promote their uncorrelated assets

 

Source: TheStreet, February 6, 2018 article


Carl Icahn and Other Activists Eye New Possibilities Following Market Plunge

Icahn raises concerns about the broader market. However, he and activist investment experts argue that there are investment opportunities ahead.


By Ronald Orol 

Feb 6, 2018 5:43 PM EST


The Dow Jones Industrial Average and the stock market overall bounced back on Tuesday from a massive market plunge the day before.

However, major market volatility following a massive jaw-dropping 1,175 point plunge on Monday hasn't dampened expectations for activist investors and their continued efforts to push for share-price improvement at U.S. corporate targets.

Consider, Carl Icahn, who plans to reveal a new investment and possibly a new campaign in the coming days. The corporate raider turned activist investor said on CNBC that there are severe problems with Exchange-Traded Funds and index fund investments, all of which could eventually lead to an earthquake in the markets if regulators don't step in soon.

However, for now, he added, that the fundamentals of U.S. companies are sound, especially following sweeping corporate tax break legislation approved in December. Icahn said he continues to find great values in the market today, and he may reveal a new investment and possibly a campaign shortly.

"There are stocks that are cheap, and you can buy them. They're badly managed, or they have some hidden jewels," Icahn said. "You can burnish that jewel. There are great values around in the market today. I look for things that are simplistic and obvious. You're going after companies; you are going to see me in another one in a couple of days."

The possibility that Icahn will launch a new campaign in the coming days may not be surprising to Jim Rossman, managing director and head of shareholder advisory services at Lazard. Rossman argues that the market downturn, in his view, has provided new openings for activists.

"It widens and makes more attractive, discounts to intrinsic value at targeted companies, and it creates new targets at companies who make missteps in reaction to the new volatility," Rossman said.

Rossman added that he continues to expect to see activists set new records for activism in 2018 when it comes to the number of dollars allocated to campaigns. In an exclusive to The Deal, Rossman said that his team has calculated that activists deployed $6 billion in new activist campaigns in January, significantly ahead of last year's pace, which was a record year.

"We are expecting 2018 to set new records in activism, driven by the opportunity to catalyze M&A and now this downturn in valuations," Rossman said.

Also, Charles Elson, director of the Center for Corporate Governance at the University of Delaware, noted that it now will be that much cheaper for an activist to allocate capital at a company if they have already identified an issue that they believe can be rectified.

"If there is an issue it will be cheaper for them to get involved," Elson said. "It certainly produces a situation where stocks are cheaper, and it is easier for an activist to get involved. If you have the guts, this is a good time."

However, Elson, who has previously served on activist fund director nomination slates, suggested that he didn't believe that the market downturn would act as a further driver of activist Nelson Peltz and his efforts to shake up Procter & Gamble (PG). The iconic packaged goods company settled with Peltz in December, granting him a seat on the company's board. Peltz has been pushing for a revamped look at P&G's R&D, and he wants to see the company reduce the number of its global business units from four to three. P&G's shares closed on Thursday at $85.85 a share, dropping over the next few trading days to trade recently at $80.93 a share.

Even so, Elson argued that P&G's problems must be compared to its rivals, adding that if the packaged goods company's competitors lost market capitalization value during the past few days, then the downturn shouldn't put a special new focus on P&G. Indeed, some major competitors to P&G had a rocky few recent days, including Unilever NV (UN) , Colgate-Palmolive Co. (CL), and Avon Products Inc. (AVP).

"The fundamental issues at P&G are still there," Elson said. "But everything is relative. The key is how you perform relative to your peers."

Al Zdenek, president of New York-based Traust Sollus Wealth Management, suggested that activist investors have companies in mind for campaigns but that they often won't allocate capital to those targets until a correction of some sort like Monday's plunge occurs.

"If you are Carl Icahn or another activist you will wait until the right time to make your investment," Zdenek said. "You see a company that you think is kind of rich right but but you know that somewhere along the way a correction like this will occur."

 


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