Shareholder Activism

Two views enter, one view leaves

[The following was written by Senior Shareholder Shenanigan Supervisor Peter Q. Ribic]
Who wins big when Icahn, Loeb, Peltz and activist cohorts squeeze firms? Two recent studies from Columbia Business School and Moody’s present conflicting answers.
According to Columbia professor Wei Jiang, firms confronted by hedge fund activists outperform other stocks by 9% twenty days after they are targeted, on average. In the long term, these firms experience larger dividends, improved equity returns and smaller CEO pay packages. Jiang doesn’t think this trend will continue indefinitely, commenting that:

Although it is too early in the cycle to predict the fate of hedge fund activism with any certainty, if activism can be viewed as another form of arbitrage, then it is likely that the returns associated with it will decline, or even disappear, as more funds chase after fewer attractive targets.

Moody’s presents an opposing view from a predictably credit centered perspective. Moody’s feels that large stock buybacks, special dividends and spun-off divisions are largely illusory and ravage credit-ratings, causing serious long-term damage to companies.

We have observed numerous examples in concessions to activists that have eroded credit quality contributing to downgrades. Rarely are the changes positive in the short-term.

NewYorkBusiness.com notes that Moody’s current, independent manifestation is the product of a shareholder push that separated the research firm from Dun & Bradstreet Corp. in 2000. Since the split, Moody’s stock has risen from $13.30 to $67.06.
Activism is sometimes harmful, says Moody’s [NewYorkBusiness]
Hedge-Fund Activism Boosts Returns, But Less So Today -Study [Dow Jones via CNN Money]
Shareholder Activism: Boon, Bane or Both? [DealBook]

comments.jpgAccording to the Washington Post, Morgan Stanley is now an “activist shareholder“. Referring to MS Investment Management’s call for the abolition of the Times’ dual class stock structure, the WaPo writes:

The New York Times is the third major media company to be challenged by activist shareholders in the past year. Time Warner Inc. faced off with corporate raider Carl C. Icahn over its handling of its AOL Internet subsidiary in February, and investors, led by Private Capital Management, forced the sale of Knight Ridder Co. in March. Private Capital Management is the New York Times Co.’s largest public shareholder.

Now, it seems, anyone expressing dissent of any sort is an activist shareholder. And we don’t want to be left behind on the trendy-but-wrongly-used financial terminology bandwagon, so you will no longer be known as “commenters” and “readers,” but as “activist shareholders.” Activist sharehold away!
NY Times Control Challenged [WaPo]