Activist shareholders throw down gauntlet to cash in on Wall Street gains
By Sophie Estienne ,AFPNEW YORK -- Shareholder activism is back.
March 16, 2013, 12:06 am TWN
Leading Dell investors Southeastern Asset Management and T. Rowe Price are challenging company founder Michael Dell's effort to take it private at what they say is a huge discount.
David Einhorn of hedge fund Greenlight Capital is urging Apple to return to shareholders some of its US$137 billion cash pile.
Elliott Management is pushing to remake the board of oil company Hess and restructure the company.
And the king of the activists, 77-year-old raider Carl Icahn, is locked in several proxy battles: pressing oil rig operator Transocean for a higher dividend, joining the Dell fight, and jumping into a hedge fund scrap over nutrition firm Herbalife.
In each case, shareholders have thrown down the gauntlet to company management in an effort to win what they say are more shareholder-oriented policies.
Some efforts might be characterized as “green-mail” — forcing a board to agree to cash payouts to investors to get the activist to back off.
But others, like hedge fund Third Point's effort last year to force out Yahoo chief Scott Thompson, are aimed at reinvigorating company management.
Since Thompson left, Yahoo's new chief, Marissa Mayer, has quickly launched an effort to turn around the company.
Shareholder activism “has been around a long time, but has become a bit more high-profile” given some of the celebrity-like figures who are going after corporate boards, said Gregori Volokhine, a portfolio manager at Meeschaert in New York.
Billionaire Icahn is leading the pack. The veteran of Wall Street raids and hostile takeovers defends his actions as forcing boards to deliver more value to shareholders.
“What we do by shaking up a large number of companies that need shaking up is very salutary for our economy,” Icahn told AFP last week.
“Many of our companies, but with many exceptions, are run by CEOs that should not be running them,” he said.
“And as a result, these corporations are not as productive as they should be.”
Icahn threatened Dell with “years of litigation” if it refused to bow to his demands that the board agree to a sizable special dividend for shareholders rather than allow Michael Dell's buyout at a price allegedly far below the company's true value.
With Transocean, he assailed the board for squandering company cash on “unsuccessful development strategies.”
In a letter to other shareholders, he said he was proposing a hefty dividend payout “because I believe that a high dividend payout ratio is the only way that Transocean will consistently employ a disciplined and sensible approach to capital allocation.”
While some activists want to discipline management, others simply hope to prompt a revaluation of a company by the market.
“There are serious undervalued companies that the market unfairly punishes, and activists are trying to create some attention for them,” said Michael Gayed, an expert in investment from Pension Partners.
Activists often speak out against excessive executive pay, or against management structures that install too much power in the chief executive.
Critics, including boardrooms under assault, say activists sometimes care only about the short term, winning headlines to push the stock one way or another.
Yet even if the activist's motivation is to boost the value of his own investment, rank-and-file shareholders can still benefit.