Monday, November 3, 2008
Six months ago I posted on how activism is on the rise - and now in early November one of the top stories of the year is the activist shareholder Jana’s successful play around CNET. This is written up in a terrific Bloomberg trend piece on activist investors – definitely worth reading if you are interested in how activists operate. In one case they describe how a specific focus on vulnerabilities of the by-laws and other corporate governance issues can create openings and weakness they can take advantage of. The devil is, as usual, in the details.
With current rock-bottom prices for a lot of companies, the extreme value style of activist investment would seem to have a good run in front of it. Even without the ready liquidity of former times, the private equity firms still are sitting on a considerable amount of cash – when very few others are – and the activists with strong reputations are potentially at the front of the line as new money comes in.
But while activists get a bad rap much of the time, they are not always bad for companies. CEOs and boards can get complacent, enjoying moderate returns, or even declining returns, but not having the vision or courage to break out and try another strategy. While I am (for obvious reasons) pretty sympathetic, I have a board member who is an activist hedge fund manager – Charlie Frumberg at Emancipation Capital – and he is thoughtful and substantive in the positions he takes and the companies he gets personally involved in turning around, breaking up or selling.
You can see a household name example of the difference of opinion between management and an activist shareholder in the Minneapolis Star Tribune’s article on Ackerman and Target. In this case there is definitely a schism long term strategy – specifically whether Bill Ackman’s push to get Target to sell out its land holdings to generate a short-term investment return is good for the company in the long run.
I think, in the end, most boards are responsible (I know the two I sit on take their responsibilities very seriously) and running a large company is a hard complex task that can look much easier from the outside. But challenge is also good because it keeps boards on their toes and focused.