Activist investors – Why companies fear billionaire takeovers

9 August 2013 07:23 am - 0 - {{hitsCtrl.values.hits}}

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A century ago, their tribe, engaged in less complicated businesses than power-packed takeovers, was known as robber barons. Today, the billionaires whom Wall Street admires for their ability to generate money on money, are apparently fanged with takeover poison spewing from them and companies have come to fear the activist investors for just what they can do to peel off a company, layer by layer, unravel years of brand building to uncover what the investors call ‘hidden potential’. The companies call it dying by strangling or somewhat closer to it.

Corporate raiders
Some of Wall Street’s biggest players – Pepsi, Sony and Dell have all been ‘hijacked’ by billionaire activist investors. Operating through hedge funds, these takeover big boys have targeted 57 companies, according to estimates that are rattling a lot of nerves in the corporate world. Known as ‘corporate raiders’ they believe they can unravel the true worth of a company, smugly layered in multiple coverings.
Activist investors often oust leadership of the company they acquire – billionaire Daniel Loeb, who acquired Sony and accused Sony’s management of being ‘bloated’, was castigated by one of Hollywood’s high profile leading men, George Clooney. Clooney said a man who did not understand how Hollywood operated and did business, a corporate raider, was trying to tell Tinsel Town folks how to make and market movies.

Clooney may be right – not all movies become blockbusters but some of them do generate a healthy box office run, while a few do crash. And Clooney & Co also like to see movies as an art form and it is. Movies are one of the world’s most powerful mediums that can swing lifestyles and cause opinions. So maybe after all, hedge fund billionaires may need to learn a thing or two from the Oscar-winning actor.
As the famous billionaire T. Boone Pickens once said, “It may smell like manure to you, but it smells like money to me.”

Greedy investors
Activist investment is pushy in your face and is usually done with the single determined objective of acquiring a company – they start first by purchasing a substantial amount of stock. They next use their voting rights to start pushing for change that they hope will bring out the hidden true worth.

As billionaire Bill Ackman has said, “The investment business is about being confident enough to know that you’re right and everyone else is wrong.” Legendary billionaire investor Kirk Kerkorian, known for his tough tactics in the boardroom, is better known as the ‘smiling cobra’.
These billionaire activist investors believe in saying what they want to – they will not think twice about giving out their opinion about how or why a company can do better. Activist investor David Einhorn recently said, “In 2006, we compared Microsoft to A-Rod, which was a compliment at the time. In 2013, the comparison is still apt but it is no longer a compliment.”
According to the industry experts, the activist investors are driven by greed and a desire to get share prices to soar before quitting with a pile in the bank.

The goal of activist investors is straightforward: Get share prices climbing and then cash out with a hefty profit. Bill Ackman, an activist investor, bought a 5.4 percent stake in the burger chain Wendy’s back in 2006. He then pressurized Wendy’s to spin off its doughnut arm. A few months later, Ackman had sold almost all of his shares at a 67 percent profit.
It didn’t reap so good for the other investors – since Ackman left, Wendy’s stock had plummeted 80 percent.

Fear mongering
Billionaire Carl Icahn is called the grand dad of all fear mongering investors. Icahn is currently pursuing plans to take Dell private, causing endless headaches to Dell executives. He is gunning for Michael Dell, CEO. If Icahn gets his way and observers say he might, Michael Dell might find himself thrown out of the company he founded.
Head of Pershing Square Capital Management, billionaire Bill Ackman plays a different game – one of going to the regulators about a company he has his sights on. He has tried to take Herbalife on, complaining that the company is running an illegal pyramid structure but for once, fellow robber baron Icahn is disagreeing with him.

There are others – many whom corporate America sees as raiders who are after only the financial gains a company can provide. They are accused of not being interested in generating growth, jobs or sales. But then activist investors have their own story to tell – some accuse companies of getting too comfortable in structures, hefty packages and the general corporate executive life.
We have had our own activist investors too here in Sri Lanka – with mixed results. The world will always have them as long as companies continue to need the kind of funding only the likes of them can provide.

(Nayomini Weerasooriya, a senior journalist, writer and a PR
professional, can be contacted at nayominiweerasooriya@gmail.com)

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Activist investors – Why companies fear billionaire takeovers

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