might be on the 150th rescheduled special meeting by now, had Dell not changed its by-laws to allow insider owners the right to vote on the leveraged buyout. Icahn wanted his alternative proposal voted on at the same time to reduce risk for shareholders, but the Delaware Chancery Court ruled that Dell’s voting standards were permissible. Despite saying he would seek appraisal, Icahn sold out shortly afterwards, leaving a group of shareholders including T. Rowe Price wondering whether the $13.75 per share deal was good value.
Popular tactics – a cash-rich climate Winning board seats remained the most visible objective voiced by activists in 2013, with just under 30% of all publicly disclosed activist objectives concerned with gaining access to the inner sanctum. Traditional sources of value, such as spinning off subsidiaries – the kinds of campaigns seen at Timken, Ashland and most recently at Darden Restaurants – are also consistent features of the activist playbook. However, it is in cash-exploitation that activism has surged this year, with 13% of all activist campaigns seeking larger dividends or share repurchase programmes, compared to 8% last year. It is a trend Carl Icahn exemplifies especially well, with his repeated assertion that “Apple is not a bank” and his precatory proposal for a non-binding shareholder vote on a buyback worth around $50 billion.
Indications that the current M&A climate might be unfavourable are reflected in the drop in the number of companies activists say should be sold, an objective seen publicly only 26 times in 2013, compared to 47 times in 2012. In December, Clinton Group announced that it was exploring financing options for a takeover of Wet Seal, as the company’s results continued to drag. Most experts are expecting M&A to pick up in 2014, so this change could be short-lived. Given that 20 unique activists publicly called for the sale of a company in 2013, it remains a feature of activist investing.
The kinds of activism used in 2014 will likely be influenced by economic conditions, and particularly by a flight from bonds to equities. As a result, share buybacks and M&A could be pushed further up the agenda. However, as we make clear elsewhere in this review, governance changes will also be a staple of activist objectives.
THE ACTIVIST TOP 10 For the first time in this review, Activist Insight looks at which activists created the biggest splash in 2013. Using our bespoke data, we have given each of these well known activists a ranking for categories such as the number of new investments in 2013, the average size of these investments, and the changes sought at companies during the year.
Finally, using our unique “Follower Returns” feature, designed to enable investors to coat-tail activist plays, we track the performance of activist- targeted stocks in 2013, providing an aggregated annualised return for each activist. These returns should be treated as a guide only – actual performance figures are likely to cover slightly different periods and include fees, while calculations of individual stock performance do not take dividends into consideration.
1. Few can doubt that 2013 was the year of septuagenarian investor, Carl Icahn. Whether in his prolonged battle to prevent the takeover of Dell, or an enviable investment in Netflix that more than quadrupled in value, Icahn has hit all the high notes in the past year. Most notable, perhaps, was a run of campaigns that saw Icahn’s nominees added to the boards of six companies. “There are lots of good CEOs in this country,” Icahn told Activist Insight, “but the management in many companies leaves a lot to be desired. What we do is bring accountability to these underperforming CEOs when we get elected to the boards.” As well as the usual run of TV interviews, 2013 also saw the launch of The Shareholder’s Square Table website, something that may continue to be a platform in 2014.
Icahn’s ability to make multi-billion-dollar investments from his own personal fortune contributed to a trend of activism at large-cap companies in 2013, with Apple and Transocean among those feeling the heat. According to Icahn, “The model we have works so well because there’s a need for it.” With Icahn insistent that activism is anything but a fad, there is little doubt that 2014 will be an equally busy year.
2. ValueAct Capital, led by Jeff Ubben, Mason Morfit and George Hamel Jr, was relatively quiet in 2013, but surprised many when it emerged with a board seat at Microsoft. The activist owns less than 1% of the outstanding common shares, but is believed to be influencing the choice of a new CEO. Microsoft’s strong stock performance may justify this campaign, while Allison Transmission Holdings and Valero Energy have also performed strongly since ValueAct disclosed its investments in each company. Elsewhere, the activist received a sale premium from its investment in Gardner Denver. Despite its $2.6 billion investment in Microsoft, ValueAct amassed a portfolio of mostly small investments, typically below the 5% threshold for filing a Schedule 13D Form. These might form the basis for its portfolio in 2014, and lead to a number of new campaigns.
3. Dan Loeb’s Third Point nearly didn’t survive the financial crisis, but has since roared back to health. Taking activism to Japan with his investment
in Sony was a bold step, and perhaps required more courtesy than Loeb showed in October’s public letter to Sotheby’s CEO, Bill Ruprecht. Both campaigns are pending, with Sony opting to cut costs in its Entertainments Division rather than spin off the movie-making arm, and Sotheby’s yet to announce the personnel changes requested by Loeb. Elsewhere, healthy performance in Nokia and Yahoo! stocks boosted Third Point’s “Follower Returns,” making up for its relatively quiet season pushing for major changes.
4. Greg Taxin’s Clinton Group doesn’t often make the headlines, owing to its preference for the small-cap space. However, the Group’s $1.5 billion in assets under management is widely spread, allowing it to disclose nine new investments and clock up the second-highest number of active campaigns, where it publicly pushed for change, in 2013. Indeed, Clinton Group was deeply involved in one of the year’s most difficult proxy contests, eventually winning a majority of seats on the board of Stillwater Mining. In general, the activist is known for its mastery of company by-laws and intense focus on growth strategies. As the year ended, Clinton Group was fighting for change at Violin Memory, Xenoport and ValueVision Media, as well as considering taking Wet Seal private. After seeing investments in Inteliquent and Digital Generation soar earlier in the year, it will be hoping to carry its good form into 2014.
5. Starboard Value LP busied itself during 2013 with campaigns at OfficeDepot, where it successfully oversaw a merger with Office Max and won board representation, and at Smithfield Foods, where it failed to prevent a takeover bid from Chinese pork-producer, Shanghui. A busy year apparently made for healthy profits, with Starboard Value’s “Follower Returns” showing healthy growth across a number of the stocks the activist invested in. Starboard Value also won board representation at DSP Group and Wausau Paper during 2013, while disclosing 10 new investments. A particularly busy final quarter saw Jeff Smith’s fund launch campaigns to overhaul Compuware, Calgon Carbon and Darden Restaurants, as well as plans for a proxy contest at TriQuint Semiconductor, so 2014 is likely to be equally eventful.
6. Paul Singer’s Elliott Management has become one of the world’s global activists, taking advantage of protections for minority shareholders in takeover situations with several campaigns in Germany during 2013. In the US, Elliott was also busy at Emulex, striking a deal that won board seats and secured a share repurchase programme, in return for giving up its campaign to force a sale of the company, and at Hess, where controversy over the activist’s plans to
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