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Fortune's Hodgson: Activist Titans Like Icahn and Ackman Are Changing Corporate America

By    |   Thursday, 04 December 2014 02:03 PM

Activist investors like Carl Icahn and Bill Ackman lately have become more bold, in part because they are finding their confrontational approaches are successful.

The reason is that corporate America is simply not prepared to resist the onslaught of veteran hedge fund tycoons, according to an analysis by Fortune's Paul Hodgson.

"The influence of activist hedge funds, from Icahn Enterprises to Pershing Square to Third Point, appears to be growing. And not among smaller companies where buying a significant stake means fewer resources are tied up, but among large, Fortune 500 companies," he wrote.

Hodgson explained that success breeds more success, which the likes of Icahn have been having, there is an apparent lack of preparedness by large companies to react to hedge funds and that corporate boards and management teams have displayed a lack of confidence.

"All these are leading to activist triumphs," Hodgson asserted.

As evidence, he noted Icahn's investment and subsequent campaigning recently forced eBay to sell PayPal, sending eBay stock to a six-month high.

Also, he noted that Daniel Loeb's Third Point agitated to shake up Sotheby, which led to the CEO's resignation along with a jump in the stock price.

As for Ackman's Pershing Square, its short-seller challenges to Herbalife have coincided with a falling stock price, and Ackman teaming up with Valeant to take over Botox-maker Allergan led to a huge profit for his holdings even though Allergan was eventually sold to a rival.

Hodgson said business consultancy PwC estimated directors at more than a third of large companies (more than $10 billion in revenues) reported they had had interactions with activists, while less than 20 percent of smaller companies reported dealings with hedge funds.

"Boards are crumbling in front of the likes of Loeb and Icahn because the value released by changes they are forcing through is making it more likely that other shareholders will support them. Replace directors? New CEO? Divestments? If it came to a vote, management and existing boards would likely lose the fight, so they capitulate before combat actually begins," he noted.

"In most cases, these campaigns benefit all shareholders, so don't expect the hedge funds to go quiet any time soon."

CNBC reported the new tactics of activist investors have spoiled traditional private equity moves to take over public companies in leveraged buyouts.

"Now with activist investors pushing for more shareholder value, such exclusive deals have almost completely disappeared. Either the company gets put up for an auction to find the highest bidder, or the activists simply try to make the changes themselves while keeping the company public," CNBC reported.

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Activist investors like Carl Icahn and Bill Ackman lately have become more bold, in part because they are finding their confrontational approaches are successful.
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Thursday, 04 December 2014 02:03 PM
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