Tuesday, September 04, 2007

No More Activism By Numbers

Last weekend, the Times ran an interview with Carl Icahn, in which the legendary investor commented on how the credit crisis will affect activist investors. (According to Icahn, 'saber-rattling' won't be enough in this environment.) Today, another similar article appeared in the Journal by Gregory Zuckerman.

In this one, Zuckerman noted "activist angst" and stated that such funds could be "left in the dust" as they can no longer just advocate "pressuring companies to sell out, pay juicy dividends and buy back shares".

As someone who practices activist investing -- albeit as an individual using the Internet, rather than a hedge fund -- I couldn't be happier about these developments. Flip through Ken Squire's 13D update in Barron's every week for the past couple of years and you will find most investors prescribing the Holy Trinity of Mainstream Activism: Get Sold, Pay a Dividend, and Buy back Shares. This is not long-term unlocking of value; this is Activism By Numbers. And, hopefully, a credit tightening will flush these investors with a simplistic approach out of the market.

To be a successful activist in this market, you will have to understand the operations of the company and its industry. You will have to know how to help a company execute a turnaround. You will have to carefully study the composition of the board and management team and the strategy they have developed (or not developed, as the case may be). You will also have to build a coalition of other like-minded and frustrated investors.

The Journal article recognizes this. "Activists with turnaround expertise may be the only ones who thrive in the new hedge-fund world." Dan Loeb at Third Point is mentioned as an example of an activist battling on in this manner. Icahn will continue, of course.

I will continue to push for positive changes at Motorola and Yahoo! Yahoo!'s stock has rebounded substantially today on a positive Bear Stearns' report suggesting its take-out value is $50 per share. Motorola is up with the broader market today and -- interestingly -- UBS mentions it as a likely activist target in the next 12 months.

We will soon see who can perform as an activist in good and bad markets.


I found a blog posting over the weekend mentioning Microsoft as an activist target. The author pleads that a significant MSFT shareholder with a "spine" kick-start an activist campaign. He asked why I had not become involved, as well as Capital Research and others.

First off, I'm flattered that he'd suggest I get involved. I'm happy to chat with him or anyone else, if they want to suggest companies in which value could be unlocked.

However, I'd encourage him/her or anyone else to look inside before looking to others for help. You do not need to be an activist hedge fund to run an activist campaign -- although having one support you helps. You need to make your case for change. If it's compelling, others will support you -- why wouldn't they, if it will benefit them as a shareholder. Capital Research and other large institutions are made up of individuals. You just need to find the ones who care about Microsoft or any other company.

I haven't looked in detail at Microsoft, but I would like to launch a blitzkrieg of new activist campaigns in the coming weeks against worthy targets. I would appreciate any suggestions of readers' top picks for companies -- large and small -- who could benefit from some agitated investors wanting to push for some needed changes. Please email or comment your suggestions. Thanks.

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