Tuesday 2011-08-30

Extreme Value Hedging by Ronald Ozol

Would have been helped by going in-depth on just a couple exemplar cases of activism instead of just telling the top-level stories.

In 1954, (Louis) Wolfson acquired a 6.5 percent stake in Montgomery Ward and launched a campaign to oust directors from the company's board...
Montgomery Ward subsequently made other changes Wolfson agitaed for and the company's stock improved dramatically.
-- Growth of Activism
Those individuals that believe activists have emerged and stand for something vastly different than corporate raiders of the 1980s generally point to a watershed even that took place in 1986. That was the year Ralph Whitworth launched United Shareholders Association, or USA, a grassroots organnzation that represented small shareholders.
Whitworth, 51 (in 2008), today runs the extremely successful activist fund Relational Investors, which focuses on improving the governance of target companies and at the same time making money for his investors.
-- Growth of Activism
in 1995, CalPERS allocatd USD 200 million to Batchelder and Whitworth's fledgling San Diego-based activist fund, Relational Investors. In return for its initial investment CalPERS expected Relational to buy large stakes and engage managements at a small number of undervalued companies, by focusing on corporate governance approach to share enhancement...
With CalPERS's backing, the activist hedge fund also had on its side a major institution (assets = USD 140 billion in 1998) that could attract other institutions...
-- Can't Be Them? Then Fund Them
In fact, the activists wanted to see the company cancel a proposed merger that they didn't like and instead liquidate itself and distribute proceeds to shareholders. Liquid Audio was a cash-rich, yet profitless company that manufactured software enabling consumers to download and purchase music from the Internet in a proprietary digital format.
-- How Activists Use Litigation to Pursue Their Agenda
(Alan) Kahn alleged that the Dutch parent company was violating its fiduciary duty to NA Philips' shareholders by prohibiting its US subsidiary from buying its components from cheaper manufacturers emerging in Asia, as many of its better-priced rivals had been doing.
-- How Activists Use Litigation to Pursue Their Agenda
Companies with more than 40 percent of their total assets in cash and passive investments, such as securities, must register with the SEC as investment companies. The concern by a large group of activist investors was that Farmer Brothers (a coffee roaster) was not putting its capital to good use.
-- Why Activists Target Certain Corporations
Richard Lashley (of PL Capital) invests in thrifts and banks and nothing else. Since 1995, he's instigated about 13 public activist campaigns, mostly to encourage banks and thrifts to merge.
-- Hedge Specialization
Since 1984, his hedge fund, Seidman & Associates LLC, has launched roughly 30 activist campaigns and 28 proxy contests at 11 institutions (banks and thrifts), installing directors at six of them.
-- Hedge Specialization
Many mutual fund managers yield overwhelming voting power that they use for their own interest rather than for those shareholders for whom they are supposed to vote.
-- Harvey Pitt, Regulation and Activists
a typical tactic of besieged managements is to delay company annual meetings or prohibit investor or analyst participants from asking questions to executives (Home Depot, Liquid Audio, Farmer Brothers)...
(Gary) Lutin also has organized several meetings of shareholders in New York (although most are online now).
-- Technology, Communications, and Activists
The Cevian team (operating in Sweden primarily) has generated 50 percent annual returns net of fees for the past ten years (to 2008!)
-- Hedge Activists in Western Europe, Asia, and Canada