THE WALL STREET
Activists Are on a Roll, With More to Come
They Reached New
Heights in 2014, Cementing Position as Force in U.S. Boardrooms
Ackman’s Pershing Square Capital Management has more than $19
billion under management.
Jan. 1, 2015 5:08
targeted sellers of everything from breadsticks to Botox in 2014.
The investors, who buy
stakes in companies and push them to make financial or strategic
changes, cemented their position as a force in U.S. markets and
While their prominence has
been steadily increasing in recent years, in 2014 they reached new
heights, sweeping out all the directors of one company, getting a seat
on the board of the nation’s oldest bank and helping set the stage for
the biggest takeover of the year. Activists also raised billions of
dollars in a sign they are likely to be as busy, or busier, in 2015.
activists held $115.5 billion in assets, up from $93 billion to start
the year, according to hedge-fund tracker HFR.
William Ackman ’s Pershing Square
Capital Management LP has more than $19 billion under management, and
in an effort to create a more permanent capital base, took a portion
of its funds public in 2014.
Daniel Loeb ’s Third Point LLC
raised $2.5 billion in just a few weeks this past summer, bringing its
total to about $17.5 billion.
“Companies that are being
well advised are assuming there is already a corporate activist in
their stock,” said Andrew Freedman of Olshan Frome Wolosky LLP, a law
firm that advises the investors.
The success the investors
enjoyed in getting their way in 2014 will test them in the coming
years as companies they now control are scrutinized for signs that
promised changes are paying off. If not, activists risk losing the
support of other investors they rely on.
But for now, such dangers
seem far off. Even well known corporate lawyer Martin Lipton, long an
activist antagonist, begrudgingly acknowledged at a conference in
March that there are some he respects. (“I wouldn’t say ‘liked,’ ” Mr.
Lipton quickly added.)
The victory that perhaps
best captured their newfound power was Starboard Value LP’s win
Darden Restaurants Inc., the
owner of Olive Garden and other restaurant chains. After Darden sold
its Red Lobster chain without giving investors a vote, as a majority
of them had requested, Starboard led a takeover of the entire
12-person board. While activists had ousted a complete board before,
none had been the size of Darden, which now has a market value of $7.8
billion. The victory echoed in board rooms across the country,
Seeing others lose their
fights at such high rates, some blue-chip companies decided not to
take the risk.
Dow Chemical Co. and
Bank of New York Mellon Corp. ,
the oldest bank in the country, all added activist representatives to
their boards in agreements with the investors that avoided potential
Even when they technically
lost, activists seemed to walk away victorious.
A heated fight over the
maker of Botox,
Allergan Inc., captivated the
health-care and deal-making industries for months. Pershing Square
Valeant Pharmaceuticals International
Inc. in a $53 billion hostile bid for Allergan. In an unusual
agreement, Pershing Square bought a 9.7% stake in Allergan ahead of
the takeover offer.
Things didn’t work out as
Pershing Square and Valeant had planned. Allergan refused to negotiate
and lawsuits flew in all directions. Ultimately, Allergan agreed to
sell itself to
Actavis PLC for $66 billion, in
the year’s biggest deal.
Still, Pershing Square
stood to make about $2.2 billion from gains on its Allergan stake. A
lawsuit that could endanger the profit remains unsettled.
A big theme for activists
in the year was breakups.
Carl Icahn pushed
eBay Inc. to separate
electronic-payments unit PayPal, which the online-auction company
announced it would do months after rejecting the activist’s campaign.
Elliott Management Corp. is urging a split-up of data-storage giant
EMC Corp. , a push the company
has so far rejected publicly. And Trian Fund Management LP, which has
made a career of pushing corporate revamps, targeted DuPont & Co. and
PepsiCo Inc. with breakup
campaigns. Each company argued it is stronger united.
For all the headlines they
drew and all their boardroom successes, the returns activists
delivered for their own investors were less than spectacular. The
average activist fund rose about 3.5% through November, according to
HFR. That is well short of the S&P 500 index’s 12.3% gain over the
same time, but equal to the average return of all HFR-tracked hedge
funds. And activists remain controversial figures, with some investors
and others arguing that they leave companies in more parlous states by
encouraging knee-jerk thinking at the expense of long-term investing.
opposition in some quarters, activists’ recent success has come in
many cases as a result of support they have garnered from other
In 2015, that support will
be tested. Darden will be exhibit one, followed perhaps most closely
Cliffs Natural Resources Inc.,
the largest iron-ore miner in the U.S.
Cliffs had been the worst
performer in the S&P 500 in 2013, and activist Casablanca Capital LP
launched a fight to break up the company in January. Casablanca won a
majority of the board seats in July and appointed a new chief
executive, but the stock still fell more than 70% in 2014 amid turmoil
in commodity markets.
Regardless of how those
and other activist-infused companies perform, the investors have
triggered an evolution in companies’ relations with their investors
broadly, bankers say.
“The most important thing
to do is listen hard and make sure you are hearing accurately what
your shareholders are saying,” said Michael Carr, head of Americas M&A
Goldman Sachs Group Inc., which
works with companies, helping them prepare for and respond to
activists. “The odds are higher now that a disagreement is going to be
David Benoit at