Posted Mar 19th 2008 4:09PM from BloggingStocks
by Tom Taulli
Filed under: Google (GOOG), Yahoo! (YHOO), Motorola (MOT)
No doubt, there are many shareholder activists. But with Eric Jackson -- who manages Ironfire Capital LLC -- he is a bit different. That is, he uses social media, like Google Inc (Nasdaq: GOOG)'s YouTube, to help with his campaigns against companies like Yahoo! Inc. (Nasdaq: YHOO) and Motorola, Inc. (NYSE: MOT).
Well, I recently had a chance to interview him:
Why did you setup your fund? What's your take on shareholder activism?
After last June's Yahoo! annual meeting, when they changed CEOs following a high "against" vote by shareholders towards the current board, several friends and supporters encouraged me to think about setting up a fund. Frankly, they and I were a little surprised what I had been able to accomplish owning only 96 shares of the company. Many people had told me it was a waste of time and I had no chance of gaining support for an alternate "Plan B" for Yahoo! But we showed that the quality of ideas matter more to other shareholders than the quantity of shares owned. My hard costs were negligible for the campaign: a $30 webcam and a couple of JetBlue tickets to California. Several people said: "You need to do this on a larger scale." Ironfire Capital will allow me to do that.
My take on shareholder activism is that it's going to continue and be an exciting new asset class unto its own. Last fall, some nay-sayers said the tightened credit markets would cause activism to go away, because companies couldn't pay out cash to shareholders as easily as before. Now, there are many smaller shareholder activist funds out there who follow a "color by numbers" approach. No matter the company, their solution is: (a) put the company up for sale, (b) do a dividend to shareholders, or (c) do a stock buyback. Those are all valid recommendations in the right situation, but if you advocate them at all times and with all companies, you have less credibility in the eyes of targets and shareholders. The best activists -- and the ones who will do well in this environment and moving forward -- will come up with recommendations that suit the situation and obviously promise to deliver value. Sometimes, they'll take a hard-line approach, but sometimes a softer approach can be effective (as we've seen in recent days with Harbinger and Firebrand being awarded board seats at the New York Times).
You've been innovative in using social media. What are some of the things you've learned?
It's never been easier or less expensive to express your point of view. With that said, just because you have an opinion doesn't mean that others will listen. Anyone who wants to speak out and attract supporters needs to spend a lot of time at it and make sure they can back up their arguments. But, once you have something to say, I found blogging and YouTube videos were very helpful in attracting attention to my messages. Using a wiki to invite comments and changes to a plan was also a very effective way of getting better ideas, and also making others feel more engaged in the process.
That said, not every social media outlet I tried drove more traffic to my campaigns. I like Facebook, but creating a Facebook group didn't seem to help bring incremental awareness, because anyone who joined the group was sent back to the blog or YouTube.
Your next target is GeoEye Inc. (Nasdaq: GEOY). Why?
I invest in a company because I believe it will be an outstanding investment. The first two companies I targeted (Yahoo and Motorola) were high-profile, but GeoEye isn't - its market cap is $500 million. But I believe my brand of activism using social media will work just as well if not better with smaller and less well-known companies. I expect many people will hear about this company and give it a look because of the activism.
GeoEye is a solid company; it's not broken. Due to the vagaries of the market and because management hasn't outlined the exciting story it has as well as it could, it happens to be severely under-priced. It delivers spaced-based imagery to government and commercial customers. It has a trailing P/E ratio of 12 when its competitors' are in the mid- to high-20s. So, if properly valued at a P/E of 20, the stock deserves to be at $45, not $28. But they also will be launching a new satellite this summer which will help drive new revenue from new and existing customers. Additionally, during their analysts' call last week, they weren't able to disclose full net earnings and EPS numbers because they're waiting on an IRS ruling for how to account for a 60 person acquisition they made last year. This is expected to be resolved and disclosed by the end of the month.
All that said, I believe this board and management team can benefit from some activism. Management needs to do a better job outlining the story and the opportunities in front of it to investors. That's part of the answer as to why they've been over-looked to date, I believe. Their board could be better as well. They've got some great people, but no one representing the commercial customer views. They also need to encourage their outside directors to dig into their pockets and buy some stock reflecting their confidence in the business. We'd like to see each one own a half a million.
Wednesday, March 19, 2008
Posted Mar 19th 2008 4:09PM from BloggingStocks