Tags: Moelis | boards | activist | investors

Ken Moelis: Corporate Boards Should Fight Back Against Activist Investors

By    |   Wednesday, 11 Jun 2014 10:19 AM

Not everyone is fond of activist investors like Carl Icahn, who in the 1980s were known as corporate raiders.

Ken Moelis, CEO of renowned boutique investment bank Moelis & Co., says corporate boards shouldn't give in to the activists, who often demand share buybacks and cost cuts.

"We think the pendulum has swung too far where corporate boards are treating activists like they've already won," he tells CNBC.

Editor's Note:
Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

Companies should be willing to stick to their long-term growth strategies and ignore some of the activists' demands, Moelis notes. "I think growth is much more desirable."

Investors are less eager for the return of capital than they were two years ago, and companies that use their capital to spark growth will be more highly rewarded by financial markets, he explains.

"Your investors want you to do something with your capital that generates a higher rate of return than they can."

Meanwhile, there's a global trend toward increased regulation of deposit-taking institutions, turning them into quasi-utilities, Moelis adds.

Not everyone objects to activist investors.

In an upcoming study in the Columbia Law Review, researchers examined approximately 2,000 interventions by activist hedge funds from 1994 to 2007.

"We find no evidence that interventions are followed by declines in operating performance in the long term; to the contrary, activist interventions are followed by improved operating performance during the five-year period following these interventions, the researchers write.

"We also find no evidence that the initial positive stock price spike accompanying activist interventions fails to appreciate their long-term costs and therefore tends to be followed by negative abnormal returns in the long term; the data is consistent with the initial spike reflecting correctly the intervention’s long-term consequences."

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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Not everyone is fond of activist investors like Carl Icahn, who in the 1980s were known as corporate raiders.
Moelis, boards, activist, investors
313
2014-19-11
Wednesday, 11 Jun 2014 10:19 AM
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