The reinvention of corporate raiders as activist shareholders

As the necessary evils get invited to the boardrooms and broadhrooms, you’ll know what comes next
S3ra Sutan Rajo Ali
Jakarta, 1 August 2017

Like any other cashing in efforts, corporate raiders are more welcomed these days. Side businesses and moonlightings are the ones they are after. They’re not trying to get messy with the parent company’s businesses, but a more wide and deep access to the unthinkable on papers.


Where, Oh Where, Have All the Corporate Raiders Gone?
MARGARET ISA, JUNE 30, 1996

Correction Appended

THEY were the much-feared and often reviled commanders of the takeover wars of the 1980’s. Fueled by junk bonds, they raided corporate America seemingly at will, and made vast fortunes. In their heyday, they hobnobbed with the junk-bond king Michael R. Milken at his annual “Predators’ Ball.”

But this is the 1990’s. Junk bonds and greenmail are out, Mr. Milken is a private citizen after spending two years in jail and paying $1.1 billion in fines and settlements for securities-laws violations, and a restructured corporate America has made itself resistant to the unwanted attentions of wheeler-dealers.

And the former corporate raiders? They are older, of course, and some are ailing. Some are prospering, but others have been forced to seek Chapter 11 protection for their debt-laden companies — or give them up altogether. A few have scaled back their ambitions to such undertakings as running Burger Kings in Israel or doing consulting work for a little computer company in the West. A couple have run afoul of the law, receiving punishments ranging from 20 months in prison to serving meals to the homeless.

Here is a look at some of the men — there are no women in their ranks — who with Irwin L. Jacobs helped define the decade of greed, and where they are today.

THE BASSES

Sid, Lee, Robert (left) and Edward Bass, whose holdings include oil and real estate, scored one of their biggest and most publicized victories in 1984 with a huge but friendly investment in the Walt Disney Company, which was busily fighting off an assault by Saul P. Steinberg. The tale of that convoluted transaction was told in a 1987 book by John Taylor, “Storming the Magic Kingdom.”

All four brothers, as well as their father, Perry, and Sid’s former wife, Anne, are on the Forbes 400 list of the richest Americans. The brothers divided up their fortune in the 1980’s to pursue separate business strategies and interests. Sid, who had been most active in managing the family’s business affairs, has largely escaped the limelight.

Earlier this year, however, he created a stir in the art community by increasing his investment group’s stake in Sotheby’s Holdings Inc. The youngest, Lee, was embroiled in a controversy over a $20 million donation he made to Yale University five years ago. The university returned the money last year because Lee had stipulated that it be used for a Western Civilization curriculum and wanted to approve the instructors himself.

What one brother taketh away, another brother giveth: Last month, Robert made a $20 million donation to Yale to renovate its residence halls. The entire brood has joined in a venture called Sundance Square to renovate the historic downtown area of Fort Worth, with brother Edward in charge. Edward, an avid environmentalist, also financed the Biosphere II project near Tucson, Ariz., a $150 million attempt to create a self-sustaining ecosystem inside a glass bubble, where eight people lived for two years.

THE BELZBERGS

Canada’s Belzberg brothers — Samuel (left), Hyman and William — failed spectacularly in their 1990 attempt to acquire Armstrong World Industries. Not only did their prey escape, but the Lancaster, Pa., home-products company also lobbied successfully for passage in Pennsylvania of some of the country’s toughest anti-takeover legislation.

The Belzbergs ended up losing $13.6 million in their aborted bid, and their Vancouver flagship company, the First City Financial Corporation, showed a $228 million loss for 1990. Though the family then said it was shifting its focus to West Coast real estate, environmental services and friendly transactions, things went from bad to worse.

In 1991, American regulators seized a California savings and loan owned by First City Financial, saying it was poorly managed. As losses of the Belzberg company widened to $324 million, Swiss bondholders gained majority control and renamed it the Harrowston Corporation. The Belzbergs, however, kept a 15 percent stake and installed a member of the next generation, Brent, as president.

PAUL A. BILZERIAN

Mr. Bilzerian is doing worse, in some ways, than most. In top form in 1988 when he acquired the Singer Companies, a military contractor, in a $1.06 billion hostile takeover, he was convicted a year later of nine felony counts; fined $1.5 million and sentenced to four years in prison (later reduced to 20 months) for securities-law violations, including filing false information with the Securities and Exchange Commission.

In sentencing him, the judge said he was increasing the prison term because he believed Mr. Bilzerian had perjured himself. The charges stemmed from his acquisition of large blocks of stock in two companies: Cluett, Peabody & Company and the Hammermill Paper Company. After filing for personal bankruptcy in 1991, Mr. Bilzerian has stayed out of the public eye of late, leading a quiet life in the 22,901-square-foot Tampa compound that he fondly calls the “Taj Mahal.” (Florida law protects homes — no matter how big — from creditors.) In 1994, he was hired as a management consultant by Cimetrix Inc., a small computer company in Utah.

ROBERT CAMPEAU

Mr. Campeau’s department store empire tumbled two years after he completed it. The Canadian financier’s hostile takeovers of Allied Stores Inc. for $3.4 billion in late 1986, and then Federated Department Stores for $6.6 billion in 1988, left his Campeau Corporation awash in debt just when junk bond prices collapsed in the late 1980’s. In 1990, both retailing units were forced to seek bankruptcy protection and Mr. Campeau was ousted as chairman and chief executive. In a 1992 reorganization, Campeau Corporationwas renamed the Camdev Corporation and Mr. Campeau ended up with a 2 percent stake. Camdev now deals only in real estate.

ASHER B. EDELMAN

Back in 1985, Barron’s magazine called Mr. Edelman “the newest kid on the takeover block” and described the “fierce struggle” by the Datapoint Corporation to fend off him off. Datapoint lost the battle, and Mr. Edelman continues to run the San Antonio-based maker of computer networks as chairman and chief executive. Datapoint, which had $174 million in revenue last year, has been losing money for several years.

But it is mostly Mr. Edelman’s lavish life-style, rather than his raiding skills, that has captured the public’s attention in the 1990’s. He has a large, and by some accounts risque, art collection. Last November, he sold Jasper Johns’s “Winter” from the “Four Seasons” series for $3 million, and in May he put another Johns work, “Gray Painting With Ball,” up for auction but failed to get the $1.5 million minimum he was asking.

Mr. Edelman also has a taste for spacious living quarters; in 1994, he sold his 23-room penthouse on East End Avenue in Manhattan, complete with a 63-foot-long entrance gallery, two libraries, a gym, a four-bedroom children’s wing and planted terraces overlooking the East River — for $5.85 million. His artworks haven’t immunized him from the nitty-gritty of the business world, however.

Mr. Edelman and his company recently settled a lawsuit over the sale of land in Texas for an undisclosed sum after a jury had awarded the plaintiff a total of $63 million. And five years ago, he agreed to pay $436,858 in a settlement with the Securities and Exchange Commission, which had accused him of waiting two days before disclosing his additional purchases in September 1989 of Datapoint stock.

SIR JAMES GOLDSMITH

Sir James has been devoting himself increasingly to politics. The English-French financier, who once owned the American supermarket chain Grand Union, sold most of his business interests before the stock market crash of 1987. A committed conservative who wrote editorials for the French magazine L’Express when he controlled it in the 1980’s, he is turning his guns these days on European unification.

He has written a book, “Le Piege” (The Trap), that criticizes plans for a single European currency. In 1994, he won a seat on the European Parliament. He also founded the Referendum Party in Britain, which has threatened to sponsor single-issue candidates in any election where the Labor and Conservative parties refuse to support a national plebiscite on “the sort of Europe of which Britain wants to be a part.”

CHARLES E. HURWITZ

Mr. Hurwitz has made headlines recently with his fight to end Federal logging restrictions on his redwood forests. Maxxam Inc., a conglomerate that he controls, went heavily into debt in 1986 to buy the Pacific Lumber Company for $900 million, and now Mr. Hurwitz wants to chop down thousands of acres of giant evergreens on Pacific Lumber property to pay down his debt.

Environmentalists want to protect the old-growth trees and the endangered coastal birds, marbled murrelets, that live in them. In May, Pacific Lumber sued the Federal Government, demanding an end to the logging restrictions on the grounds that they violate the Constitutional prohibition on taking private property without compensation. The Federal Government wants to buy some of of Pacific Lumber’s land, but the two sides have not been able to agree on a price.

CARL C. ICAHN

Mr. Icahn is perhaps the busiest of the bunch. He is now trying to wrest control of RJR Nabisco Holdings to force a spinoff of the food business from the tobacco operations, a move that he contends would produce a bonanza for stockholders. Mr. Icahn failed to win control of the board of the RJR Nabisco Holdings Corporation with his ally, Bennett S. LeBow, in April, but earlier this month he severed his agreement with Mr. LeBow, an increasingly unpopular figure with Wall Street.

Mr. Icahn has also changed with the times, seeking out stakes in distressed companies that he can turn into good investments. In 1995, he bought up debt of Rockefeller Center Properties Inc., the trust that holds the $1.3 billion mortgage on Rockefeller Center. Mr. Icahn has also gone into the consolidator business in a deal he made with Trans World Airlines Inc., a company he once owned. As part of its bankruptcy restructuring, T.W.A. gave Mr. Icahn the right to buy tickets with a face value of $610 million at a discount and then resell them. The airline plans to use the money it gets from selling him the tickets to pay him back the $190 million it owes him. BENNETT S.

LEBOW

Mr. LeBow has been making waves in the tobacco world. With his fellow financier, Carl C. Icahn, he fought a fierce battle this year for control of the RJR Nabisco Holdings Corporation, which the two men wanted to split up into separate food and tobacco companies in the hope of driving up the stock value. Their bid was soundly defeated in April. Separately, Mr. LeBow’s Liggett Group Inc., the nation’s fifth-largest tobacco company, broke ranks with the rest of the industry in March and settled with the lawyers for anti-tobacco plaintiffs.

Mr. LeBow also came close to forging an alliance in April with an entrepreneur, Jay MacDonald, to buy three troubled women’s magazines: Working Woman, Working Mother, and Ms.Mr. LeBow agreed to pay off the magazines’ $25 million in debt and put up $3.5 million in new working capital, but he pulled out after NatWest, the biggest creditor, demanded that he forfeit the $3.5 million if the deal fell through. Mr. MacDonald later linked up with Paxson Communications to make the purchase.

RONALD O. PERELMAN

Mr. Perelman, who acquired Revlon Inc. in a $1.8 billion hostile takeover in 1986, is doing better than most of his counterparts. He took the cosmetics company public in February to raise money to repay some of Revlon’s $2.2 billion debt.Mr. Perelman also owns the comic-book and sports-card publisher Marvel Entertainment Group Inc.. and New World, an entertainment empire that includes television stations and a production company. The flayboyant financier has probably made as many appearances in the gossip columns as he has on the business pages. He recently married Patricia Duff, a Democratic Party activist and mother of his one-year old daughter.

Mr. Perelman, who is a Republican, has five other children from two earlier marriages. His previous wife, the gossip reporter Claudia Cohen, walked away with an $80 million divorce settlement and then had a short-lived romance with Senator Alfonse M. D’Amato of New York. Mr. Perelman can frequently be found at charity dinners, parties and nightclubs.

He was embroiled last year in a high-profile spat with the former chief financial officer of his MacAndrew & Forbes holding company, Fred Tepperman, who said he had been wrongfully dismissed by Mr. Perelman for taking time off from work to care for his wife, who had Alzheimer’s disease. The company had its own side of the story, contending in a countersuit that it had dismissed Mr. Tepperman for neglecting his duties. The two sides reached a out-of-court settlement, the terms of which were not disclosed.

T. BOONE PICKENS

Mr. Pickens, the Texas oilman who railed against entrenched managers who were no friends of the common stockholder, came full circle this month by stepping down as chairman and chief executive officer of Mesa Inc., the energy company he founded 40 years ago. Mesa had been straining under more than $1 billion of debt, and a group of shareholders, led by David Batchelder, a board member and former Mesa president and Pickens protege, had been seeking to unseat Mr. Pickens on the grounds that he had mismanaged company finances.

Richard Rainwater, whom Mr. Pickens had recruited to help defend Mesa against the dissidents, is expected to install his own team now. Analysts attribute Mr. Pickens’s downfall in part on his losing gamble that natural-gas prices would jump. His quiet departure contrasts vividly with the high-profile runs he made in the 1980’s on energy giants like Gulf Oil, Phillips Petroleum and Unocal.

VICTOR POSNER

Mr. Posner once reigned over a financial empire with substantial stakes in about 40 companies. But the Sharon Steel Corporation, the linchpin of his holdings, filed for Chapter 11 bankruptcy protection in 1987, and Mr. Posner has spent the last decade in and out of court. In a 1987 conviction for tax evasion, the Miami financier was sentenced to serve meals to the homeless and to help pay for homeless shelters.

In 1989, he was sued by shareholders of the DWG Corporation, who accused him of plundering the company. To resolve the lawsuit, Mr. Posner agreed in 1992 to resign as chairman of DWG and to give up his controlling stake in the conglomerate, which owned the Arby’s Inc., fast-food chain; the Royal Crown Cola Company, and the National Propane Corporation.

In 1993, he was convicted of securities fraud relating to his 1984 bid for the Fischbach Corp., a New York electrical contractor. Mr. Posner was permanently barred from serving as an officer or director of any publicly traded company and was ordered to give up $3.5 million. Last year, he was sued by his son Steven, who accused his father of plundering the closely held Security Management Corporation, an owner of rental property controlled by the elder Mr. Posner. His lawyer at the time said Mr. Posner intended to vigorously defend himself.

JAY A. PRITZKER

Mr. Pritzker, the Chicago financier whose family owns several closely held businesses, including the Hyatt Corporation and Regency Cruises Inc., has spent the last few years feuding with another, albeit part-time, raider, Donald J. Trump. In 1993, Mr. Trump had sued the Pritzker family over its management of their jointly owned hotel, the Grand Hyatt in New York.

Mr. Trump asserted that Hyatt’s management had engaged in questionable accounting practices, and in 1994, Hyatt countersued for breach of contract. They settled the suits last year for an undisclosed sum.In 1993, Jay’s brother Robert, who runs the Marmon Group, the family’s private industrial empire, became chairman of the National Association of Manufacturers and used it as a bully pulpit to expound his fairly conservative views on Washington’s role in economic matters.

MESHULAM RIKLIS

Mr. Riklis’s empire has been coming apart since the late 1980’s. He still has McCrory, the chain of five-and-dime stores he bought in 1960, but it has been operating under Chapter 11 protection for four years. The three other major companies Mr. Riklis ran in the 1980’s also ended up in bankruptcy proceedings as a result of heavy debts. Mr. Riklis recently fought a battle with prostate cancer. And, to pay the settlement for his divorce from the entertainer Pia Zadora, his homes and art collection have been put up for sale. He has recently started smaller businesses, like Burger Kings in Israel.

HAROLD SIMMONS

Mr. Simmons is holding steady, still in control of a number of companies. Earlier this month, one of them, Valhi Inc., agreed to sell its Amalgamated Sugar Company refinery to the Snake River Sugar Company, a cooperative of 1,600 sugar-beet farmers, for $250 million in a tax-favorable transaction. Valhi is likely to use the proceeds to pay down debt and put capital into its other businesses, which include forest products, fast food and hardware products.

SAUL P. STEINBERG

These days, Mr. Steinberg’s family owns just under 50 percent of Reliance Group Holdings, a seller of property-casualty insurance that Mr. Steinberg purchased in 1968 and used as a vehicle for his other financial dealings. Analysts say the company has been restructured well, posting strong earnings in some recent quarters. Trouble is, Mr. Steinberg suffered a stroke about a year ago. The Brooklyn-born financier needed several hours of physical therapy a day to regain the use of his left arm and hand.

Correction: July 14, 1996, Sunday An article on June 30 about the corporate deal makers of the 1980’s misstated a holding of the family of Jay A. Pritzker, the Chicago financier. The family has a partial interest in Royal Caribbean Cruises Ltd.; it does not own Regency Cruises Inc.


http://www.marketwatch.com/story/corporate-raiders-and-activist-investors-a-field-guide-2014-04-02
Corporate raiders and activist investors: a field guide
William L. Watts, Apr 5, 2014 8:30 a.m. ET

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX829_gekko__20140328095041_MG.jpg?uuid=fcbeb56e-b67f-11e3-b721-00212803fad6
Slide 1 of 10

Swashbuckling, value-destroying “corporate raider” or shareholder-friendly “activist investor?”

A case can be made for either term. But one thing is for certain, boardrooms aren’t safe from well-heeled hedge-fund operators and other billionaires who are certain they know how to run a company better than corporate managers and board members.

Invest like Icahn: The rise of the activist investor

From their 1980s heyday, dramatized in the movie ‘Wall Street’ and the book ‘Predator’s Ball,’ to today’s modern activist investor, here is a field guide of the names you should know.
— William L. Watts @wlwatts

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX839_icahn__20140328101703_MG.jpg?uuid=abe8d062-b683-11e3-b721-00212803fad6
Slide 2 of 10
Carl Icahn

When it comes to “corporate raiding” and “activist investing,” you can’t use either term without talking about Carl Icahn.

The chairman of Icahn Enterprises L.P. IEP, +2.52% was among the most prominent of the raiders of the 1980s, most famously taking over Trans World Airlines in 1986, eventually loading it up with debt, and selling off many of its best routes. The episode contributed to Icahn’s reputation and has been used against him by recent foes.

Now, like most self-styled activists, Icahn doesn’t seek control of companies. Instead, he buys up a chunk of shares, agitates for representation on the board, and campaigns relentlessly for the changes he thinks will best benefit shareholders, including himself. While a younger generation of activists is also burning up the Street, the 78-year-old Icahn has been quick to adapt to social media, using Twitter and the Web to express his views and agitate for change.

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX832_loeb_d_20140328095911_MG.jpg?uuid=2aed6920-b681-11e3-b721-00212803fad6
Slide 3 of 10
Dan Loeb

Aside from a subpoena or a search warrant, a letter from Dan Loeb may be the piece of paper CEOs fear most.

For a glimpse of the Third Point founder in his epistolary glory, a 2005 letter to Star Gas Partners saw Loeb tell then-CEO Irik Sevin: “A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America.” Twisting the knife, Loeb went on to observe that Cornell University offered a scholarship in Sevin’s name: “One can only pity the poor student who suffers the indignity of attaching your name to his academic record.” (Vanity Fair has a roundup of Loeb’s 10 meanest letters).

And then there was that fight with George Clooney, who took exception to Loeb pressuring Sony SNE, +0.24% to spin off its entertainment assets.

Loeb’s trademark loud-and-obnoxious style seems to work for him. Third Point was one of the small handful of hedge funds to keep pace with the broader market in 2013, posting a return of 25.2%, according to Reuters.

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX831_whitwo_20140328095604_MG.jpg?uuid=bc37bf26-b680-11e3-b721-00212803fad6
Slide 4 of 10
Ralph Whitworth

A former protege of T. Boone Pickens, this billionaire and founder of Relational Investors has used small stakes in companies to fight for board seats or otherwise argue for change. While the firm isn’t a household name, it’s been involved in some major corporate shakeups, including a 2006 battle aimed at getting Home Depot Inc. HD, +1.03% out of the commercial building supply business. A fight over strategy – and a huge CEO paycheck – led to the resignation of Home Depot chief executive Robert Nardelli in January 2007.

More recently, Whitworth was named interim chairman of Hewlett-Packard Co. HPQ, -0.37% in April 2013. Shares are up around 45% since.

Read why the nation’s second-largest public pension fund is working with activists like Whitworth.

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX830_peltz__20140328095451_MG.jpg?uuid=8d2a6a62-b680-11e3-b721-00212803fad6
Slide 5 of 10
Nelson Peltz

Like Icahn, Peltz bridges the gap between the 1980s and modern-day shareholder activists. Peltz was a major player in the 1980s takeover boom, tapping a pool of financing created by the sale of junk bonds by Drexel Burnham Lambert’s Michael Milken.

Peltz, like most modern activists, no longer seeks full control of company boards and doesn’t use outside financing, instead relying on his own Trian Partners hedge fund. Peltz earlier this year joined the board of snack-food maker Mondelez International MDLZ, +0.20% , where Trian is the fourth-largest stakeholder, according to Thomson Reuters.

He’s also embroiled in a campaign to get PepsiCo Inc. PEP, +0.00% , where he is also a major shareholder, to sell off its drinks business — a maneuver that Pepsi CEO Indra Nooyi and Pepsi’s board have resisted.

http://ei.marketwatch.com//Multimedia/2014/03/31/Photos/MG/MW-BX980_einhor_20140331153926_MG.jpg?uuid=381b887e-b90c-11e3-a264-00212803fad6
David Einhorn, middle, at the fourth annual Take ‘Em To School Poker Tournament at Gotham Hall in New York.
Slide 6 of 10
David Einhorn

The founder of Greenlight Capital has a reputation as a fearsome poker player and more feared short seller. He has also made a name for himself on the activist front. Einhorn is credited with helping – with the aid of a lawsuit – to persuade Apple Inc. AAPL, -0.52% to hike its dividend by 15% and boost its stock buyback program.

More recently, Einhorn took a new $1 billion position in Micron Technology MU, -3.96% . Einhorn was soon embroiled in a legal fight over the identity of a blogger who had posted details of the investment. Greenlight later said it was successful in identifying the blogger and that the matter had ben resolved “privately to our satisfaction.”

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX833_ackman_20140328100625_MG.jpg?uuid=2d62ae80-b682-11e3-b721-00212803fad6
Slide 7 of 10
Bill Ackman

Although recently known for his embattled short call on Herbalife Ltd. HLF, -1.09% , which led to an unfortunate TV debate with Icahn; a miss on Target Corp. TGT, +1.00% ; and a failed turnaround at retailer J.C. Penney JCP, -2.70% Ackman has also had his share of successful calls.

Among his wins, the founder of Pershing Square Capital Management took a stake in Procter & Gamble in 2012 and pressed for changes, including the removal of CEO Robert McDonald. McDonald exited in May of last year. Shares have risen by around 24% since Ackman first revealed he would be taking an activist position in July 2012. Ackman has cut his fund’s holdings of Procter & Gamble, shedding around 27 million shares over the fourth quarter.

In January, Pershing Square was set to walk off with around $344 million after Suntory agreed to buy distiller Beam Inc. US:BEAM in a $13.6 billion deal.

http://ei.marketwatch.com//Multimedia/2014/03/28/Photos/MG/MW-BX834_rosens_20140328100745_MG.jpg?uuid=5dcefe48-b682-11e3-b721-00212803fad6
Slide 8 of 10
Barry Rosenstein

Less of a household name than some of his peers, Rosenstein is an advocate of the less-confrontational approach to activist investing. In a January guest column in the Financial Times, Rosenstein said it had seemed like wishful thinking just a few years ago that corporate managers would engage with activists rather than automatically put up a fight. Now, however, activist campaigns are “more likely than ever to end quietly with the implementation of the activist’s ideas,” he said, noting that five U.S. public companies in 2013 adopted some or all of his firm’s proposals with very little dispute.

Jana Partners saw a return of 20.4% in 2013, according to Institutional Investor, which said one of the firm’s top activist performers was Oil States International OIS, -6.40% , while grocery chain Safeway US:SWY and specialty chemicals firm Ashland ASH, -0.75% also posted strong gains.

http://ei.marketwatch.com//Multimedia/2014/01/22/Photos/MG/MW-BT037_singer_20140122104914_MG.jpg?uuid=cd8d7734-837c-11e3-bdb5-00212803fad6
Slide 9 of 10
Paul Singer

Singer founded the hedge fund Elliott Associates in 1977, focusing on distressed debt.

The fund has been on the war path this year, pushing for changes at technology firm Juniper Networks JNPR, +0.65% and pressing its so-far-unsuccessful $21-a-share bid for Riverbed Technology Inc. US:RVBD Juniper in February announced it would implement an “aggressive capital return plan” and initiated a quarterly dividend. Shares of Juniper are up more than 14% since the beginning of the year, while Riverbed is up around 9% at $19.71.

Invest like Icahn: The rise of the activist investor http://www.marketwatch.com/story/invest-like-icahn-the-rise-of-the-activist-investor-2014-04-02
by recent foes http://www.valuewalk.com/2014/03/andreessen-attacks-carl-icahn-with-twa-past/
a 2005 letter http://www.sec.gov/Archives/edgar/data/1002590/000089914005000128/t2774169.txt
roundup of Loeb’s 10 meanest letters http://www.vanityfair.com/online/daily/2013/10/dan-loeb-mean-letters
that fight with George Clooney http://www.deadline.com/2013/08/george-clooney-slams-sony-investor-daniel-loeb/
a return of 25.2% http://www.reuters.com/article/2014/01/03/hedgefunds-loeb-idUSL2N0KD03S20140103
resignation of Home Depot chief executive Robert Nardelli http://www.marketwatch.com/story/home-depot-chief-nardelli-resigns-with-210-mln-severance
chairman of Hewlett-Packard Co. http://blogs.wsj.com/deals/2013/04/04/meet-h-ps-new-chairman-activist-ralph-whitworth/
Read why the nation’s second-largest public pension fund is working with activists like Whitworth. http://www.marketwatch.com/story/why-a-california-teachers-pension-likes-activists-2014-04-02
bridges the gap http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/02/8403476/
Indra Nooyi and Pepsi’s board have resisted http://blogs.marketwatch.com/thetell/2013/07/24/pepsico-effectively-says-no-to-nelson-peltz/
poker player http://www.businessweek.com/articles/2012-07-06/how-david-einhorn-was-out-bluffed-at-the-poker-table
short seller http://www.nasdaq.com/article/how-to-invest-like-david-einhorn-cm275373
legal fight http://blogs.marketwatch.com/thetell/2014/03/25/a-hedge-fund-and-a-blogger-bury-the-hatchet-financial-regulators-flex-their-muscle-and-more-banking-reads/
identifying the blogger http://blogs.wsj.com/moneybeat/2014/03/24/david-einhorn-identifies-seeking-alpha-blogger/
embattled short call http://blogs.marketwatch.com/thetell/2014/03/11/live-blog-bill-ackman-attacks-herbalife-again/
unfortunate TV debate http://www.marketwatch.com/story/7-biggest-brawls-in-business-2013-01-28
miss on Target Corp. http://blogs.wsj.com/deals/2011/05/16/bill-ackman-throws-in-the-towel-on-target/
turnaround http://blogs.marketwatch.com/thetell/2013/12/09/j-c-penney-and-more-of-the-years-most-profitable-shorts/
Among his wins http://blogs.wsj.com/moneybeat/2013/08/13/bill-ackmans-hits-and-misses/
exited in May http://www.marketwatch.com/story/procter-gamble-plays-it-safe-with-ceo-return-2013-05-24
shedding around 27 million shares http://www.marketwatch.com/story/bill-ackman-trims-stake-in-procter-gamble-2014-02-14
around $344 million http://blogs.marketwatch.com/thetell/2014/01/13/ackman-makes-out-like-a-bandit-in-jim-beam-deal/
January guest column http://www.ft.com/intl/cms/s/0/7fc68116-7ed2-11e3-8642-00144feabdc0.html?siteedition=intl#axzz2qwgtD7kO
according to Institutional Investor http://www.institutionalinvestorsalpha.com/Article/3293786/Barry-Rosensteins-Jana-Partners-Rises-More-Than-20-Percent-in-2013.html
$21-a-share bid http://www.marketwatch.com/story/elliott-raises-bid-for-riverbed-to-34-billion-2014-02-25-144855635
initiated a quarterly dividend http://www.marketwatch.com/story/juniper-amps-up-buyback-plan-names-new-directors-2014-02-20


http://www.marketwatch.com/story/invest-like-icahn-the-rise-of-the-activist-investor-2014-04-02
Activists here to stay as war chests near $100 billion
William L. Watts, Apr 5, 2014 8:30 a.m. ET

Activists from Icahn to Ackman are busy. Are they a boon or bane for shareholders?

http://ei.marketwatch.com//Multimedia/2014/03/27/Photos/MG/MW-BX694_active_20140327114522_MG.jpg?uuid=dbfd142e-b5c6-11e3-b721-00212803fad6

NEW YORK (MarketWatch) – Whether they’re castigated as corporate raiders or lauded as activist investors, Carl Icahn, Bill Ackman, Dan Loeb and other troublemaking billionaires aren’t going away any time soon.

That means investors need to be prepared for more crusades to replace CEOs, Twitter campaigns lobbying for special dividends, and letters urging management to find white-knight bidders, as well as quieter efforts to convince corporate boards to change strategy or return cash to shareholders. And while mudslinging matches between Wall Street titans and corporate chief executives are fun to watch, the stakes can be high for investors and other stakeholders.

To their fans, who now include some of the nation’s biggest institutional investors, activists are largely a force for good, putting money in the pockets of shareholders while holding managers and boards to account. To skeptics, they remain far too focused on the short term, leaving them little different from the corporate raiders often cast as financial villains in the 1980s .

http://ei.marketwatch.com//Multimedia/2014/03/26/Photos/MG/MW-BX590_campai_20140326123918_MG.jpg?uuid=414cd6ec-b505-11e3-b721-00212803fad6

“I think [activist investors] bring an outside perspective to companies…They can say, this is how the Street views you and this is why your stock is undervalued,” said Philip Larrieu, senior investment officer at the $181 billion California State Teachers Retirement System, or Calstrs, the nation’s second-largest pension fund.

Read a Q&A with Calstrs’ Philip Larrieu

Calstrs has invested $3.3 billion with activist-oriented fund managers and, in a landmark move, last year co-sponsored a successful shareholder proposal that will split a 115-year old Ohio manufacturer into two separate firms.

Critics see more hype than lasting benefit.

“In an ideal world, activist investors take a big stake in a company and add value by fixing poor operating performance and improving the balance sheet and jettisoning inept managers and board members,” said Martin LeClerc, chief investment officer at investment advisory firm Barrack Yard Partners in Bryn Mawr, Pa.

Unfortunately, “many tend to be very short-term focused and the solutions they come up with are solutions to get the stock moving,” he said.

Most campaigns since 2009

The number of campaigns remains on the upswing. In the first quarter of 2014, 34 campaigns resulted in board seats being awarded to activist investors, according to data compiled by FactSet SharkWatch. That is up from 19 in the first quarter of 2013 and the most since 2009, when 35 campaigns resulted in board seats over the same period.

Corporate raiders or activists investors: a slideshow of Wall Street’s hungriest sharks

For the activists themselves and those parking money in their funds or other vehicles, it’s often been a lucrative development.

Overall, activist-oriented funds have solidly outperformed the broader hedge-fund universe over the last five years. Like hedge funds in general, they still lag returns in the broader market, though a few superstars have delivered a series of knockouts.

There are no guarantees, however, and observers warn that while activists show no sign of going away, outsize returns could eventually become harder to achieve.

So what does it mean for everyday investors?

Investing in hedge funds typically requires a stake of $1 million or more. For others, blindly jumping into stocks after an activist fund announces a stake probably isn’t an advisable strategy, LeClerc said.

On the other hand, if an activist takes on a stock an investor already has a stake in or has been eyeballing, then it offers “another data point” to consider, he said.

Tidal wave of money

Meanwhile, money is flowing into activist funds. At the end of 2013, an estimated $93.1 billion sat in activist hedge funds, according to Hedge Fund Research, up from $65.5 billion at the end of 2012 and nearly triple the $32.3 billion in assets seen at the end of 2008.

http://ei.marketwatch.com//Multimedia/2014/03/27/Photos/MG/MW-BX683_activi_20140327104800_MG.jpg?uuid=d517c896-b5be-11e3-b721-00212803fad6

Of course big returns attract big flows, and the returns for activist hedge funds have been impressive.

HFR’s index of activist hedge funds delivered a one-year return of 13.4% as of Jan. 1 versus a return of 5.8% for the firm’s weighted composite hedge-fund index. Over five years, the activists saw a return of 13.4% versus 7.7% for hedge funds in general. (The S&P 500, with dividends, delivered a 21.5% one-year annual return and a 19.2% annual return over five years.)

There is another ingredient as well: a big, juicy pile of cash.

The cash hoard at U.S. nonfinancial companies stands at around $1.5 trillion, according to Moody’s Investors Service. As Apple Inc.’s AAPL, -0.52% Tim Cook and countless other executives have learned, there is nothing like a wad of unused money on the balance sheet to attract financiers eager to tell them what to do with it.

Calstrs joins with hedge fund

In another crucial twist, institutional investors who were once suspicious of outside agitators are now embracing activist proposals or even helping to trigger shake-ups on their own.

This reflects a huge change in the way institutional investors view the world, said Gary Hewitt, head of research at GMI Ratings, a corporate-governance research firm.

Institutional investors, including big pension funds and life insurance companies, once seemed inclined to side with a target company over outside agitators, but that’s not necessarily the case any more.

Moreover, in the past decade or so, institutions have come around to more of a “universal ownership” view, Hewitt said.

In other words, institutions recognize that given their own tremendous size, they can’t easily jump in and out of shares. They effectively own the whole market, and that means “they would rather change the company than change companies,” Hewitt said.

Calstrs’s Larrieu said the institution expects the activist funds it invests with to leave companies better off when they go on to their next campaign. Meanwhile, the activists’ efforts when successful also boost the performance of Calstrs’s indexed holdings.

Institutional shareholders now often lend a sympathetic ear to activist proposals. While public shoutfests like Icahn’s running battle with eBay are entertaining, corporate boards often move quickly to accommodate activist demands. and avoid a proxy battle.

U.S. pipeline operator Williams Cos. WMB, -0.66% earlier this year gave board seats to two activist investors to avoid a fight. Microsoft MSFT, -0.47% last year announced a new $40 billion share repurchase plan after coming under pressure from activists. Microsoft in March appointed Mason Morfit, president of activist investor ValuAct Capital, to its board, under the terms of an agreement reached last year.

A board that automatically spurns suggestions from hedge-fund investors is likely to incur the wrath of institutional investors and other big shareholders, said Robert Katz, a partner at law firm Shearman & Sterling.

Indeed, in some cases, institutional investors are aiding the activists-or even playing the activist role themselves.

Calstrs last year teamed with activist fund Relational Investors, headed by billionaire Ralph Whitworth, co-sponsoring a nonbinding proposal to split up Ohio-based steel and ball-bearing manufacturer Timken Co. TKR, +0.11% to eliminate what they termed a “conglomerate discount” impairing the share price.

Timken management opposed the proposal, but it won support from a majority of shareholders. Timken subsequently announced in September that it would split.

The close relationship between institutional investors and activists is one reason the investing strategy is likely to endure.

No need to take control

There are other differences with the era of corporate raiding that saw its heyday in the 1980s, when financiers like Icahn, T. Boone Pickens and others would threaten or launch a bid for outright control of a company in transactions often fueled by the issuance of junk bonds.

There really is a systematic problem here if we have a system in which we have to ensure the pensions of teachers by breaking up manufacturing companies–
Suzanne Berger, MIT

Icahn’s 1985 takeover of TWA was followed by a $650 million stock buyback that allowed him to recoup his initial investment of around $469 million, but also saddled the carrier with around $540 million in debt, according to Investopedia. The airline’s most valuable routes were sold off to competitors and the airline filed for bankruptcy protection in 1992, with Icahn exiting the company the next year.

In other instances, raiders would effectively seek to get paid to go away after amassing a threateningly large stake in a company.

The current crop of agitators usually don’t gun for outright control of their targets. Activists accumulate stakes that rarely exceed around 10% of stock, noted veteran M&A lawyer Charles Nathan, senior adviser at RLM Finsbury, while financing comes from their own hedge funds or other resources that they control.

Activists now are more focused on “value creation for all shareholders instead of creating a new class of stock and a special dividend” to get paid to go away, Hewitt said.

Bad for bondholders

There is still a dark side. While activists focus on creating shareholder value, corporate bondholders have little reason to cheer when they roll up to a company’s front door, say analysts at Moody’s Investors Service.

“Activism is rarely good news for creditors,” said Chris Plath, a senior analyst at the ratings firm, in a report.

Some measures favored by activists, such as the sale of cash-generating assets, can lead to a deterioration in a company’s credit picture. Plath said that in 2013, ADT Corp. US:ADT BMC Softwware Inc. and Nuance Communications Inc. NUAN, +0.23% were all downgraded after they took actions in response to pressure from activists.

Activists don’t always get what they want. Icahn, whose January call for online auction site eBay Inc. EBAY, -0.58% to spin off its PayPal unit through an IPO soon turned acrimonious, is now calling for a spinoff of just 20% of the online payments system, in a move viewed as a retreat. eBay shares are up around 3.4% since late January. Icahn didn’t respond to an interview request.

LeClerc argued that the push to split up businesses, such as a call by Nelson Peltz of Trian Partners for PepsiCo Inc. PEP, +0.00% to spin off its drinks business, might not always be the best long-run option for shareholders. Pepsi has resisted the call and reiterated in February that the company’s management and board remain fully aligned.

“The problem with Pepsi is the drinks business stinks,” LeClerc said.

While splitting the company up could result in a pop higher for the shares, “the other option is to fix the drinks business,” which could allow the stock to move to the high $80s. Pepsi PEP, +0.00% shares are little changed on the year, ending Wednesday at $82.87.

Peltz declined an interview request.

Lean isn’t always so mean

Some argue that the push to strip down companies to “core competencies” has gone too far. Suzanne Berger, a political-science professor at the Massachusetts Institute of Technology, says that pressure from investors to slim down large, vertically integrated firms into leaner operations have contributed to a hollowing out of the U.S. manufacturing sector.

The Timken breakup, which Calstrs supported, threatens synergies that could undercut the firm’s ability to innovate and compete over the long run to the potential harm of workers and other stakeholders, Berger said.

“There really is a systematic problem here if we have a system in which we have to ensure the pensions of teachers by breaking up manufacturing companies,” Berger said, in a phone interview.

Larry Fink, the chairman and chief executive of BlackRock Inc., the world’s largest asset manager with around $4.3 trillion under management, sent a letter to the chief executive of every S&P 500 company warning that dividends and buybacks often sought by activist investors can come at the expense of long-term investment, The Wall Street Journal reported.

But activists can point to research that shows long-term returns haven’t been dented by activist campaigns.

In a frequently cited paper, Lucian Bebchuk of Harvard Law School studied around 2,000 interventions by activist hedge funds between 1994 and 2007 and found “no evidence that interventions are followed by declines in operating performance in the long term.” Instead, they found that operating performance improved during the five-year period after the interventions.

Getting crowded

How long will activists reign? They don’t appear likely to go away soon, but observers expect there will eventually be shifts and shakeouts.

When the asset class does get too crowded, activists will be picking on companies not really suited to their strategy or will begin searching for more “quick hits,” said RLM’s Nathan.

At some point, if an asset class’s performance starts to suffer, money will leave for greener pastures.

“In economic theory that’s bound to occur, but it’s only easy to see in hindsight,” Nathan said.

mudslinging matches http://blogs.marketwatch.com/thetell/2014/02/28/icahn-now-suggests-ebay-a-totalitarian-state-has-he-gone-too-far/
Read a Q&A with Calstrs’ Philip Larrieu http://www.marketwatch.com/story/why-a-california-teachers-pension-likes-activists-2014-04-02
Corporate raiders or activists investors: a slideshow of Wall Street’s hungriest sharks http://www.marketwatch.com/story/corporate-raiders-and-activist-investors-a-field-guide-2014-04-02
gave board seats http://www.marketwatch.com/story/williams-reaches-agreement-with-corvex-and-soroban-2014-02-25
share repurchase plan http://www.marketwatch.com/story/microsoft-ups-dividend-sets-new-buyback-plan-2013-09-17
appointed Mason Morfit http://www.reuters.com/article/2014/03/11/us-microsoft-director-idUSBREA2A21W20140311
split up http://blogs.wsj.com/deals/2013/04/10/relational-argues-vote-to-split-timken-carries-no-risk/
it would split http://dealbook.nytimes.com/2013/09/05/timken-agrees-to-split-in-two-after-pressure-from-activist-investors/?_php=true&_type=blogs&_r=0
to Investopedia http://www.investopedia.com/articles/financial-theory/08/carl-icahn-lift.asp
spinoff of just 20% http://www.shareholderssquaretable.com/carl-c-icahn-releases-statement-on-ebay/
spin off its drinks business http://www.marketwatch.com/story/peltzs-trian-fund-renews-push-for-pepsico-split-2014-02-20
frequently cited paper http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2291577


http://www.investmentnews.com/article/20141207/REG/312079993/how-carl-icahn-became-a-corporate-raider
How Carl Icahn became a corporate raider
Tobias E. Carlisle, Dec 7, 2014 @ 12:01 am

The story of the transformation of an activist closed-end fund investor into a greenmailer

http://www.investmentnews.com/storyimage/CI/20141207/REG/312079993/AR/0/AR-312079993.jpg&imageversion=superwide&maxw=800&maxh=500&q=90&cci_ts=20141205161943

Over the fall of 1975, Carl Icahn and his right-hand man, Alfred Kingsley, hashed out a new investment strategy in the cramped offices of Icahn & Co. Located at 25 Broadway, a few steps from the future site of the Charging Bull, the iconic 7,000-pound bronze sculpture erected by Arturo Di Modica following the 1987 stock market crash.

Icahn & Co. was then a small but successful discount option brokerage with a specialty in arbitrage. Mr. Kingsley, a graduate of the Wharton School with a master’s degree in tax from New York University, had joined Mr. Icahn in 1968.

Immediately impressed by his ability to grasp complex transactions, Mr. Icahn had asked Mr. Kingsley what he knew about arbitrage. “Not a thing,” Mr. Kingsley replied. Soon, Mr. Kingsley was spending most of his days arbitraging the securities of conglomerates like Litton Industries, LTV and IT&T.

Arbitrage is the practice of simultaneously buying and selling an asset that trades in two or more markets at different prices. In the classic version, the arbitrageur buys at the lower price and sells at the higher price, and in doing so realizes a riskless profit representing the ordinarily small difference between the two.

Mr. Icahn had Mr. Kingsley engaged in a variation known as convertible arbitrage, simultaneously trading a stock and its convertible securities, which, for liquidity or market psychology reasons, were sometimes mispriced relative to the stock. Conglomerates had issued an alphabet soup of common stock, preferred stock, options, warrants, bonds and convertible debt.

INEFFICIENT PRICING

As an options broker, Mr. Icahn used his superior market knowledge to capitalize on inefficiencies between, say, the prices of the common stock and the warrants, or the common stock and the convertible debt. The attraction of convertible arbitrage was that it was market-neutral, which meant that Icahn & Co.’s clients were not subject to the risk of a steep decline in the market.

Mr. Icahn and Mr. Kingsley shortly progressed to arbitraging closed-end mutual funds and the securities in the underlying portfolio. A closed-end mutual fund has a fixed number of shares or units on issue. Unlike with open-end funds, management cannot issue or buy back new shares or units to meet investor demand. For this reason, a closed-end fund can trade at a significant discount or, less commonly, a premium to its net asset value.

Mr. Icahn and Mr. Kingsley bought the units of the closed-end funds trading at the widest discount from their underlying asset value, and then hedged out the market risk by shorting the securities that made up the mutual fund’s portfolio. Like the convertible arbitrage strategy, the closed-end fund arbitrage was indifferent to the direction of the market, generating profits as the gap between the unit price and the underlying value narrowed. It was not, however, classic riskless arbitrage.

As it was possible for a gap to open up between the price of the mutual fund unit and the underlying value of the portfolio, it was also possible for that gap to widen. When it did so, an investor who had bought the units of the fund and sold short the underlying portfolio endured short-term, unrealized losses until the market closed the gap. In the worst-case scenario, investors could be forced to realize those losses if the gap continued to widen and they couldn’t hold the positions. Sometimes they failed to meet a margin call or were required to cover the short position.

Unwilling to rely on the market to close the gap, Mr. Icahn and Mr. Kingsley would take matters into their own hands. Once they had established their position, they lobbied to have the fund liquidated.

The manager either acquiesced, and Mr. Icahn and Mr. Kingsley closed out the position for a gain, or the mere prospect of the manager’s liquidating caused the gap to wholly or partially close. The strategy generated good returns, but the universe of heavily discounted closed-end funds was small. Mr. Icahn and Mr. Kingsley saw the far-larger universe of prospects emerging in public companies with undervalued assets. This was the new investment strategy they were shaping at 25 Broadway in 1975.

UNDERVALUED STOCKS

Although few could sense it, a quiet revolution was about to get under way. Mr. Icahn and Mr. Kingsley had seen what many others had missed – a decade of turmoil on the stock market had created a rare opportunity. After trading sideways for nine years, rampant inflation had yielded a swathe of undervalued stocks with assets carried on the books at a huge discount to their true worth. Recent experience had taught most investors that even deeply discounted stocks could continue falling with the market, but Mr. Icahn and Mr. Kingsley were uniquely positioned to see that they didn’t need to rely on the whim of the market to close the gap between price and intrinsic value.

Mr. Kingsley later recalled: “We asked ourselves, “If we can be activists in an undervalued closed-end mutual fund, why can’t we be activists in a corporation with undervalued assets?'”

As they had with the closed-end mutual funds, Mr. Icahn and Mr. Kingsley would seek to control the destiny of public companies. Their impact on America’s corporations would be profound.

Mr. Icahn’s progression from arbitrageur and liquidator of closed-end funds to full-blown corporate raider started in 1976 with a distillation of the strategy into an investment memorandum distributed to prospective investors:

“It is our opinion that the elements in today’s economic environment have combined in a unique way to create large profit-making opportunities with relatively little risk. The real or liquidating value of many American companies has increased markedly in the last few years; however, interestingly, this has not at all been reflected in the market value of their common stocks. Thus, we are faced with a unique set of circumstances that, if dealt with correctly can lead to large profits, as follows: The management of these asset-rich target companies generally own very little stock themselves and, therefore, usually have no interest in being acquired.

“They jealously guard their prerogatives by building “Chinese walls’ around their enterprises that hopefully will repel the invasion of domestic and foreign dollars. Although these “walls’ are penetrable, most domestic companies and almost all foreign companies are loath to launch an “unfriendly’ takeover attempt against a target company. However, whenever a fight for control is initiated, it generally leads to windfall profits for shareholders. Often the target company, if seriously threatened, will seek another, more friendly enterprise, generally known as a “white knight’ to make a higher bid, thereby starting a bidding war. Another gambit occasionally used by the target company is to attempt to purchase the acquirer’s stock or, if all else fails, the target may offer to liquidate.

“It is our contention that sizable profits can be earned by taking large positions in “undervalued’ stocks and then attempting to control the destinies of the companies in question by:
a) trying to convince management to liquidate or sell the company to a “white knight.’
b) waging a proxy contest.
c) making a tender offer.
d) selling back our position to the company.”

The “Icahn Manifesto” – as Icahn’s biographer Mark Stevens coined it – was Icahn’s solution to the old corporate principal-agency dilemma identified by Adolf Berle and Gardiner Means in their seminal 1932 work, “The Modern Corporation and Private Property.” The principal-agency problem speaks to the difficulty of one party (the principal) to motivate another (the agent) to put the interests of the principal ahead of the agent’s own interests.

Berle and Means argued that the modern corporation shielded the agents (the boards of directors) from oversight by the principals (the shareholders) with the result that the directors tended to run the companies for their own ends, riding roughshod over the shareholders who were too small, dispersed, and ill-informed to fight back.

According to Berle and Means:

“It is traditional that a corporation should be run for the benefit of its owners, the stockholders, and that to them should go any profits which are distributed. We now know, however, that a controlling group may hold the power to divert profits into their own pockets.

“There is no longer any certainty that a corporation will in fact be run primarily in the interests of the stockholders.”

Mr. Icahn cut straight to the heart of the matter, likening the problem to a caretaker on an estate who refuses to allow the owner to sell the property because the caretaker might lose his job. His manifesto proposed to restore shareholders to their lawful position by asserting the rights of ownership.

If management wouldn’t heed his exhortations as a shareholder, he would push for control of the board through a proxy contest in which competing slates of directors argued why they were better suited to run the company and enhance shareholder value. If he didn’t succeed through with that method, he could launch a tender offer or sell his position back to the company in a practice known as greenmail.

Greenmail is a now-unlawful practice in which the management of a targeted company pays a ransom to a raider by buying back the stock of the raider at a premium to the market price.

In his 1984 chairman’s letter, Warren Buffett, who called greenmail “odious and repugnant,” described the nature of the transaction in characteristically colorful terms:

“In these transactions, two parties achieve their personal ends by exploitation of an innocent and unconsulted third party. The players are:
(1) the “shareholder’ extortionist who, even before the ink on his stock certificate dries, delivers his “your-money-or-your-life’ message to managers;
(2) the corporate insiders who quickly seek peace at any price – as long as the price is paid by someone else; and
(3) the shareholders whose money is used by (2) to make (1) go away.
As the dust settles, the mugging, transient shareholder gives his speech on “free enterprise,’ the muggee management gives its speech on “the best interests of the company,’ and the innocent shareholder standing by mutely funds the payoff.”

Mr. Icahn accepted greenmail on several occasions before it was outlawed, on one such occasion attracting a class-action lawsuit from the shareholders of Saxon Industries, a New York-based paper distributor that fell into bankruptcy following the transaction. The lawsuit charged that Mr. Icahn had failed to disclose to the market that he had requested greenmail in exchange for not undertaking a proxy contest. When Saxon Industries announced that it had paid Icahn $10.50 per share as greenmail, giving him a substantial profit on his $7.21 per-share average purchase price, the stock fell precipitously.

According to a lawsuit filed against Mr. Icahn, upon the sudden announcement by Saxon that it had purchased Mr. Icahn’s stock, the market price of Saxon’s stock nosedived to $6.50. While the bankruptcy of Saxon Industries was arguably more directly the result of the accounting fraud of its chairman, Stanley Lurie, the complaint demonstrated two ideas: first, the inequity of greenmail. The substantial premium paid to the greenmailer comes at the cost of all shareholders.

Second, the complaint illustrates the power of the activist campaign. Icahn’s threat of a proxy contest had pushed the stock price from around $6 to $10.50. Absent the possibility of a proxy contest, the stock fell back to its average precampaign price of $6.50.

Mr. Icahn’s experience with the closed-end funds had taught him a valuable lesson – simply calling attention to the company’s market price discount would attract the attention of other investors. He hoped that by signaling to the market that the company was undervalued, leveraged-buyout firms or strategic acquirers would compete for control and, in so doing, push up the market price of his holding. Icahn could then sell into any takeover bid by tipping his shares out onto the market or delivering them to the bidder.

It was the classic win-win situation Mr. Icahn sought – even if he didn’t win a seat on the board, the proxy contest would act as a catalyst, signaling to other potential bidders in the market the company’s undervaluation and mismanagement.

Excerpted from “Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations,” by Tobias E. Carlisle (Wiley, 2014).


https://www.forbes.com/sites/artimanmanagement/2014/12/16/2015-the-year-of-the-resurgent-corporate-raider-and-eight-other-predictions/#755b4b44231a
2015: The Year of the Resurgent Corporate Raider and Eight Other Predictions
Brian Wilcove, Contributor, Dec 16, 2014 @ 12:41 PM 4,419

Artiman Ventures
We write about venture capital, white space and disrupting markets.

1) More corporate break-ups are on the way

MTV, Rubik’s Cube, Pac-Man: The 80’s are cool again. It’s been 30 years since Gordon Gekko and Larry the Liquidator prowled Wall Street. Welcome back!

Activist shareholders influenced three corporate boards last year to break-up their companies: HP, eBay and Symantec led the way. In 2015, this resurgent trend will continue with more large-cap break-ups of tech companies than we saw last year.

Lots of speculation and social chatter about EMC, but maybe not JDS Uniphase (JDS Uniphase changed its bylaws). Who is on your list of candidates?

2) The “Cloud” strides forward on its inevitable journey to ubiquity and invisibility

August 6, 1991: The day the World Wide Web became public. Since then, many people envisioned a global computer network that was ubiquitous, invisible and intelligent.

We’ve been on a long slow march ever since and the latest incarnation is “software-defined everything” (servers, storage, network, devices, machines, etc.). This sector continues to attract investment by both VCs and the corporate buyers of these technologies.

In 2015, the modern day railroad tracks and steam engines will have been built (i.e. AWS, Google Compute Engine, Azure, IBM), providing a technological utility on which the vast array of applications can run and information will be globally accessible. The flow of capital will migrate towards apps that utilize cloud infrastructure.

3) Internet of Things will be the hype sector of 2015

Connected cars, home automation, wearables, drones, digital health … every year, there is always one sector that gets white-hot and my bet is that it’s IoT in 2015. The underlying trends supporting it are there: a plethora of low cost, widely available sensors, a continued miniaturization of compute platforms, big data technologies and cloud computing.

Plus, there have been highflying acquisitions and IPOs in this sector already, including Nest, Oculus, Basis, Dropcam, and GoPro. This always draws in more entrepreneurs and therefore, capital. If you have any question, just take a look at Matt Turck’s IoT landscape, which identified 199 companies in 2013. That number has now exploded to 612 logos.

The good news is that with the amount of capital that I expect to be invested in this sector and the entrepreneurial brain cells putting their minds to work, there are sure to be some fantastic inventions emerge in an increasingly robotic world with smart machines.

P.S. – Does anyone else think Zuckerberg read “Ready Player One” right before buying Oculus?

4: Big Data will fall into the trough of disillusionment in 2015, but the seeds of pervasive and invisible analytics will be planted

If you had any questions about which sector was hyped in 2014, look no further than Big Data, with Cloudera ($1.6B), Palantir ($500M), MongoDB ($150M), Hortonworks ($150M), and DataStax ($106M), all doing large raises in just the last 15 months.
Recommended by Forbes

In 2015, Big Data experiments will fail to produce the results that customers were promised. Enterprises will ask themselves what value can be realized from these new technologies. These questions will be thrust upon vendors, pushing Big Data into the trough of disillusionment.

As an example, take a look at Hortonworks IPO pricing, which has the company “dropping out of the billion dollar club.”

However, I’m a huge believer in the long-term promise that data will be the basis for competitive differentiation in the 21st century. Looking ahead to 2016 and beyond, what will emerge will be pervasive, invisible analytics. Artificial intelligence, autonomous vehicles, neural nets, etc., will all utilize big data technologies as the integral layer to perform their functions.

5) Security spending balloons and problems continue to compound

The latest incidents read like a plot for a new James Bond movie: Hackers steal confidential information about drug trials, acquisitions, and other information that could affect a company’s stock price. And the companies targeted in 2014 represent the bluest of the blue chips: JP Morgan Chase, Target, eBay, Apple iCloud, Google and so on. So far, the hackers have gone after user information or credit cards.

The next set of attacks will be ever scarier: Imagine someone logging into your bank account, transferring your money out and erasing all of the information about that account. When you go call your bank and ask where the money went, they’ll have no idea and won’t even have a record of your historical balance.

6) 2015 will be the pivotal year demonstrating Asia’s dominance in the mobile industry

PC makers are currently more profitable than mobile vendors, with the exception of Apple. So, while the PC is not dead, I’m not sure what to make of the tablet market.

Intel’s PC client group reported revenue of $9.2B in the third quarter, up 9% from the same quarter last year. Lenovo, now the world’s largest PC manufacturer grew its net profits in the second quarter to $262M, up 19% from a year ago. Meanwhile, two mobile industry goliaths, Nokia and Samsung have seen their profits decline precipitously in 2014. And what once was seen as the harbinger of death for the PC, tablets are now seeing a massive slow down.

Like the sands of the Kalahari, the center of the universe for mobile technology is constantly shifting. First it was Scandinavia in the 2000’s. This last decade was clearly in Cupertino. 2015 will be the pivotal year of Asia’s dominance in the mobile industry with Xiaomi and Huawei entering the US market in a more meaningful way than we expected.

7) Apple Pay will slam the door shut on competitors in the U.S.

Apple has broken through the chicken and egg problem that has plagued the mobile payments industry for years. Merchants, many of whom operate on razor thin margins, have been reluctant to invest in new payment terminals. Apple Pay will use the power of the consumer to lure merchants to invest in new NFC terminals and unleash the latent demand for mobile payments.

Shopping from our living room couches, hailing a taxi via an app or ordering dinner to be delivered to your doorstep, consumers, especially American ones, are all about convenience. For any of you who have used Apple Pay, it’s simply convenient. Plus, we are continually reminded that our credit cards and personal information are continually at risk. Apple’s solution to this: Store it only on Apple and they’ll secure it (tokenize your data), so your information isn’t circulating all over the place.

8) Google faces challenges in Europe & China over monopoly issues

It took more than twenty years to break up Standard Oil. Microsoft, after a long battle, ended up avoiding the same fate. The EU is making a lot of noise around Google being a monopolyand targeting the search giant is a bellwether for things to come.

Unlike China or Russia, the EU currently relies heavily on U.S. technology companies for many services. In an attempt to provide a market opening for local Internet services to grow, the EU will go after other foreign Internet services in 2015.

9) Net neutrality becomes an inevitable reality

Internet services such as Netflix, Skype, Facebook and Google are sometimes referred to as “over-the-top” or “OTT” services — they run on top of the Internet Service Providers (ISPs), such as Verizon, AT&T or Comcast.

ISPs own the wires or wireless airwaves and want to charge differently depending on whether these OTT services want to fly first class or coach. Seems reasonable, however, the OTT providers want to fly first class, but only pay for coach. If you or I tried to negotiate that with United, it wouldn’t work. Well, the OTT players tried it and it didn’t work either… obviously.

In 2015 net neutrality will become an inevitable reality as the OTT players now have lobbying muscle. This issue is a bit silly, especially for POTUS to get involved. Instead, I’d rather see the President tackle the really important issues this generation is facing, especially income equality, geopolitical issues (i.e. Russia, China and the Middle East) and our runaway social program costs.

Brian Wilcove is a Silicon Valley-based managing director at Artiman Ventures, an early-stage venture fund investing in white space companies creating or disrupting multi-billion dollar markets.

JDS Uniphase changed its bylaws http://fortune.chtah.net/a/hBUfHyVB7uQq2B89%24XCNunsCvss/fo8
Matt Turck’s IoT landscape http://techcrunch.com/2014/12/02/the-internet-of-things-is-reaching-escape-velocity/
Ready Player One http://www.amazon.com/exec/obidos/ASIN/0307887448/&tag=randohouseinc3442-20
dropping out of the billion dollar club http://blogs.wsj.com/venturecapital/2014/12/01/ipo-bound-hortonworks-drops-out-of-billion-dollar-startup-club/
latest incidents http://www.nytimes.com/2014/12/02/technology/hackers-target-biotech-companies.html
Nokia http://www.financialexpress.com/article/industry/companies/nokias-fall-reflected-in-95-decline-in-profit/12324/
Samsung http://www.cnet.com/news/samsung-expects-60-percent-drop-in-profit-for-q3-2014/
massive slow down http://www.theguardian.com/technology/2014/nov/26/massive-deceleration-tablet-shipments-ipad
being a monopoly http://www.huffingtonpost.com/2014/11/21/european-parliament-eyes-google-break-up_n_6202020.html
lobbying muscle http://www.theverge.com/2014/1/22/5336154/ten-tech-companies-spend-61-million-lobbying-in-2013
POTUS to get involved http://www.whitehouse.gov/net-neutrality


https://www.worldfinance.com/strategy/the-rebranding-of-corporate-raiders
The rebranding of corporate raiders
Aaran Fronda, March 9, 2016

They’re the bane of board members and a lifeline for shareholders, yet there has been a rise fall and revival of corporate raiders


Carl Icahn, one of the most famous corporate raiders

Back in the mid-1990s, The New York Times was left wondering where all the “much-feared and often reviled” corporate raiders of the 1980s had gone. But these marauders of corporate America never really disappeared. Instead, they underwent a dramatic rebranding. Reinventing themselves as bastions of the boardroom, shedding their villainous characterisation in favour of the more attractive tagline of ‘activist shareholder’.

This transformation was not simply superficial, however, with this once maligned group now garnering favour from those that despised them. The corporate raider is now seen as a necessary evil who serves as a counterbalance to poor management at publically traded companies whose balance sheets have become skewed.

To pay back his debtors, Icahn gutted Trans World Airlines, stripping it of its most valuable assets

World Finance takes a look back at the Wall Street predators turned corporate anti-villains in order to see how vast fortunes were made and how this class of investor has gone from pariah to partner.

Rise of the raider

The term ‘corporate raid’ describes the process whereby an investor, or raider, chooses to purchase a massive stake in a publically listed company and then uses the voting rights gained from that transaction to undermine the power and practices of the company’s management. Once in control, raiders will attempt to disrupt the make up of the board, replacing specific individuals with members who are willing to take action that will ensure shareholder value is maximised at any cost.

This tactic is not always a success, however, as any board member appointment requires a significant level of support to be obtained from shareholders. It is for this reason that corporate raiders will often employ various strategies designed to persuade shareholders that the current management’s plan for the company is the wrong one and that the direction they wish to take the company in is superior, leading to greater profits and an increased return for the investor.

One of the most infamous corporate raiders has to be Carl Icahn. He has done it all, and then done it again and again. He started out in finance in the belly of the beast – a stockbroker on Wall Street. After spending several years making markets for traders he decided to take them on at their own game, forming Icahn & Co, a securities firm that specialised in risk arbitrage and options trading. Through the success of this firm he was able to build up enough capital to buy up shares in various corporations to give him complete control over their destiny.

His hostile takeover of the now-defunct American airline company Trans World Airlines in the mid-1980s led to him having the corporate raider accolade bestowed on him. In order to assume a majority share of the airline, Icahn took on a substantial amount of debt. To pay back his debtors, he gutted Trans World Airlines, stripping it of its most valuable assets; including its London routes network. When the dust finally settled, Icahn walked away from the company with more than $450m in his back pocket, while the airline, lacking the necessary assets and route networks to adequately compete with its competitors, slowly fell by the wayside, struggling to repay its debt.

Another pioneer of the corporate raid was Thomas Boone Pikens, Jnr. He gained a name for himself as a plunderer and greenmailer of various oil and gas companies throughout the 1980s. As he saw it, the management at these companies were not up to the task and were not acting in the interest of their shareholders, so were in need of a shake up – something he was more than happy to provide.

His Gulf Oil takeover bid was responsible for catapulting Pickens to the cover of Time and is arguably his most famous raid. As the oil company entered the 1980s it was clear that it lacked direction. Its asset portfolio, while large, was not performing adequately – a characteristic reflected in the company’s share price.

However, Gulf Oil caught the attention of the Texas oilman not for its underperformance in the market but because its management had outbid him for the Oklahoma-based oil and gas company, Citigo Petroleum Corporation (Citigo) in 1982.

Pickens owned Mesa Petroleum, and his investors had hoped to buy out Citigo, a company whose share price had been underperforming for some time. But over the course of its battle with Gulf Oil it became clear to Pickens that he could turn a profit by turning his attention to his rival.

Pickens and his money-hungry team of investors at Mesa Petroleum would leave a lasting mark on the oil industry, forcing the sector to take notice of its shareholders and netting millions for them in the process. His actions also drove the management of these oil companies to develop counter measures in a desperate attempt to thwart his incessant attacks.

Backed into a corner

The fact that corporate raiders’ interests and plans deviate so dramatically from those of the board they wish to undermine naturally breeds a high level of contempt between the two parties. The disdain that derives from these polarised positions no doubt led to the name ‘corporate raiders’, as those from within attempt to erect walls capable of withstanding the onslaught of these investment invaders. On the surface, it might appear that there is little management can do to protect themselves, but over the years corporations have developed various tactics to repel such hostile attacks.

Back in 2012, the subscription video-steaming site Netflix was forced to take drastic action after Icahn announced he had bought a 10 percent stake in the company, laying foundations for a hostile takeover and leaving board members fearing for their jobs. In response, Netflix’s management threatened to take a “poison pill” in an attempt to dissuade the infamous raider from doubling down on his investment. Had Icahn pressed on and acquired a 20 percent stake in the company, the defensive manoeuvre would kick in, diluting Netflix’s shares, making any takeover prohibitively expensive.

In the end, the poison pill plan was terminated, with Icahn opting to trade the stock over a three-year period without exceeding the threshold set by the board. It was a clever decision, not only for the fact that he was able net himself over a $1.6bn return on his investment, but because he used his equity stake to apply pressure on a board that held too much power over its shareholders. Proof corporate raiders are sometimes the best defence against despondent and misguided management.

The anti-villain

In the 1980s, Icahn and his contemporaries were vilified for their aggressive tactics because they were undertaken at the expense of smaller shareholders. Over the years, however, their image as malevolent marauders slowly dissipated and their title changed to reflect this evolution from investment pariah to shareholder partner.

Nowadays, corporate raiders – or activist investors as they are now known – are viewed by many as the saviour of minority shareholders who are forced to contend with self-serving executives either incapable or unwilling to take action to provide an adequate return for investors.

“Shareholders should be tickled to death when he shows up”, Pickens told the Financial Times. “He’s about as smooth as a stucco bathtub, he doesn’t pull any punches, but he is accurate about the analysis. You can judge a trapper by his pelts, and Carl’s got a lot of pelts.”

The New York Times can call off its search party. In fact, there has been a resurgence in activist investor activity over the last 10 years or so. The global financial crisis acted as the catalyst, with management at many corporations becoming overly cautious in wake of the downturn and in desperate need of some prodding.

The rebirth of the corporate raider has reignited the debate over whether or not investor activism is a net good or evil. Some argue they are a necessary check-and-balance, while others fear the boardroom battles overshadow everything else, causing too much chaos, so when the dust finally settles all shareholders are left with is a stock drop.

But no matter on which side of the fence people find themselves, corporate raiders have left and will continue to leave a lasting mark on corporate America.


https://www.worldfinance.com/strategy/corporate-transparency-and-disclosure-neednt-be-a-burden
Corporate transparency and disclosure needn’t be a burden
Shardell Joseph, March 10, 2016

As the pressure for greater transparency and disclosure increases, some companies see the increased regulation as a burden. Successes show, however, that T&D can actually boost profitability and growth


Volkswagon, after last year’s emissions’s scandal, shows how poor governance can ruin a business

The idea of corporate governance has really only emerged as a fundamental in business within the last decade to define a new age of clarity and transparency within the boardroom. In this time there have been huge efforts in corporate restructuring to build a more accountable, skilled, diverse and transparent board separate from management.

With a lot of these changes forced by external investor and consumer pressures, many companies view transparency and disclosure (T&D) measures as ‘box-ticking’ obstacles to growth and profitability. On the contrary, research and recent examples show that T&D doesn’t necessarily hinder company growth, and can actually promote it.

For a long time corporate cultural norms perpetuated the notion that the CEO had centralised power and stood at the head of the company. The board beyond the CEO acted largely behind closed doors and decision-making was opaque.

In this new era of transparency, new developments such as social media have underlined the importance of good governance. Some companies have made significant changes and welcomed T&D into their corporate culture. Others however, have been far more resistant to change.

Last year wasn’t short of scandals, which, aside from VW, included Toshiba, Valeant and Fifa, all of which had poor corporate governance and lacked T&D

The misfortunes of opaqueness and non-disclosure

Corporate scandals have often been a central motivator for increased T&D, and the exposure of poor governance acted as a deterrent to others.

As last year’s diesel emission scandal was exposed, Volkswagen illustrated how opaqueness, non-disclosure and overall poor governance can cripple a company. Before the scandal even came to light, there were constant warnings about the way VW operated. MSCI ESG research ranked VW’s overall governance score April 2015 at 28th percentile, among the bottom of companies covered by the research globally.

The company was lower than 72 percent of the rest, flagged for counts of bribery, fraud, and collective bargaining. VW’s lax boardroom controls and peculiar corporate culture allowed for this environment, and experts argued the fallout was inevitable.

In September 2015, the German car manufacturer came under fire for fitting defective devices in 11 million vehicles to cheat on emissions tests. As stocks reached remarkable lows, and VW faced fines of up to $61bn (just in the US), the company began to crumble. The fiasco sparked vast amounts of scrutiny, most of which highlighted VW’s rather desperate need for greater corporate transparency.

When caught red-handed, the blame for many companies was deflected away from the top levels of management. Both the US and German executives deferred blame to lower level individuals or small groups. But that level of ignorance among all of higher management is hard to believe. Whether directly or indirectly, the scandal was allowed to unfold under someone’s watch.

Peter Van Vaan, Director of the Business Integrity Programme at Transparency International UK, said: “If the tone is not clear, and any deviation isn’t immediately corrected, people do believe that ‘well, the management say one thing but we’re allowed to do something different.'” He added: “In the case of VW, clearly someone somewhere down the line was encouraged, with quite a significant amount of effort, to create technology and software to cheat the system.”

A debacle on this scale would usually act as a catalyst for change. Yet VW’s recent decisions reflected a disregard for effective corporate governance and continued its culture of cronyism. Hans Dieter Pötsch, VW’s Chief Financial Officer since 2003, was announced a month after the scandal as the newest member of the board. The company continued to outright resist any change or restructure.

Last year wasn’t short of scandals, which, aside from VW, included Toshiba, Valeant and Fifa, all of which had poor corporate governance and lacked T&D. In the meantime, activism and ethical investing have gone mainstream, creating far greater external pressures for corporate restructures. And yet, there is a perennial problem that some are still unable or unwilling to recognise the need for a course correction.

Vaan said it’s easy for companies to view T&D as nothing more than just a “regulatory burden.” Often there is national pressure that “encourages box-ticking.” He added: “I think a lot of those working in finance have taken that approach to all the financial primaries and then further into the realm of ethics as well.”

Improved T&D imposes far greater responsibilities on the corporation; they are put under pressure to provide timely, consistent and accurate information to shareholders and the public regarding financial performance, liabilities, control and ownership, and corporate governance issues.

The upside to embracing transparency and disclosure

It is recognised that real transparency is scary, Seventh Generation’s Jeffery Hollender said: “If you’re not scared by what you’re revealing, then you’re not being transparent enough.” The benefits reaped from a glass-walled company are more than worth it. Consumer and stakeholder trust are the most well-known benefits, but there is more to T&D.

Firstly, combining a high level of truth and specificity can increase revenue. An Engagement report summarised that transparency within a company can increase revenue by 18 percent, where opaqueness can decrease revenue by six percent. It can increase employee commitment and innovation; creating a trustworthy and comfortable environment helps ensure a lower staff turnover, greater productivity, and employee engagement can spur innovation and experimentation.

Another really crucial element to T&D is that it has the capacity to assemble proper and effective problem solving. Where opaqueness leaves major issues, better T&D instigates discussion and pushes for problem solving.

The difference between a company coasting and a company thriving has a lot to do with their attitude towards T&D. A good reputation, internally and externally among employees and fellow management, is at the core of business success and growth. Some companies that have had their reputations tarnished have managed to redeem their brand, and through large scale restructure and T&D measures, have risen back to the top as a serious competitor.

Siemens corporate restructure

Like VW, Siemens was found to have poor corporate governance. Also like VW, this resulted in a scandal, which in 2007 exposed large-scale bribes implicating countries such as Italy, Nigeria and Argentina to make contracts for power generation equipment. But what fundamentally differs between the two conglomerates is the approach used to rebuild.

VW went for the business-as-usual approach, which may find them in a similar situation in the future. Siemens, on the other hand, has more than embraced a radical restructure. All the efforts made have contributed to turning the enterprise around.

Peter Löscher took over as CEO in 2007, and pushed through a major restructuring in the following two years, a feat that investors say others would only achieve in a decade. Löscher himself stated: “about 80 percent of the top level executives, 70 percent of the next level down, and 40 percent of the level below that”, were replaced in the months that followed his appointment. Not only did Löscher radically restructure a company based on good corporate governance and increased T&D, Siemens now actively fights against corruption and bribery on a global scale.

Relieving the regulatory burden of T&D

Even with the evidence to the contrary, companies still perpetuate the idea that T&D is a regulatory burden. The fact is the task itself is really not as hard as companies are making out. Vaan points out the uncomplicated steps towards achieving effective transparency: “Don’t pay bribes. Don’t knowingly loan the money on behalf of the people that really you should be wanting to do business with. Don’t help the corrupt hide their money – these are pretty simple concepts.” He added: “If someone takes that seriously, it’s no longer box-ticking.”

The task is simple, but it is the readjustment of corporate culture and attitudes towards effective T&D that remains the greatest challenge. The purpose of T&D is not to present a checklist to stakeholders and investors, but rather provoke discussion and outcomes that encourages positive change.

If the board and executives aren’t interested in ethics and change, and are only driven by profit maximisation, then meaningful change is hard to achieve. Vaan said: “No amount of box-ticking, compliance or systems will be able to compensate for having people in your business that are not interested in doing the right thing.”

research https://www.msci.com/volkswagen-scandal
Seventh Generation’s http://causecapitalism.com/how-transparency-can-benefit-your-company-theres-more-to-be-gained-than-consumer-trust/


Advertisements