Unfortunately for management and as we have previously noted, numerous activists have succeeded in pushing through their agendas and…the results have (for the most part) been pretty good. Recent successes include Bill Ackman’s Pershing Square (GGP/HHC/RSE), Jana Partners (Marathon and others) and Relational Investors (LLL and ITT). Even John Paulson tried to get in on the act with the Hartford Financial Group although that wasn’t as successful.
At StockSpinoffs, we mostly root for the rabble rousers, but mainly because they seem to be on the side of the spinoff. Very selfish. Unfortunately, management doesn’t always share our affection for these agitators and that is why Martin Lipton, founding partner of the prestigious law firm Wachtell Lipton, offered a brief ‘how to’ guide on how to deal with activist hedge funds. Comparing them to corporate raiders, Mr. Lipton advises companies to:
Monitor trading for signs of the “activist ‘wolf pack’”; troll news stories and Internet commentary for what “will attract the attention of attackers”; keep abreast of changes in shareholder makeup and have the CEO and CFO, in particular, maintain good relations with major institutional shareholders; and maintain a unified board.
Some other tips offered by Mr. Lipton include keeping the board constantly updated, creating a special ‘activist fund’ team and responding to activist comments only with the exciting line, ‘the board will consider’.
Activist investing is nothing new, but the fact that a heavy hitter like Mr. Lipton is releasing such a guide implies that this is something many management teams are currently thinking about. With stock prices stuck in the mud for awhile, the entry of a hot shot financier with some fresh ideas might be pretty appealing to other shareholders. Now, these funds are not altruists and sure, they might be a bit short sighted in order to rake in some profits, but overall this is likely a positive because the best defense for management is to do a good job and create value. Everyone wins that way. A more cynical person might point out that management will just end up spending more time worrying about activists and coming up with innovative ways to thwart their advances like engaging Mr. Lipton…but we tend to look at the bright side here.
Disclosure: Author holds no position in any stock mentioned.