The Activist Top Ten

From Activist Insight

 

In The Activist Investing Annual Review 2014, Activist Insight looked at which activists created the biggest splash in 2013. Using its unique database, the company gave each of these well-known activists a ranking for categories such as the number of new investments in 2013, the average size of these investments, and the changes sought at companies during the year.

A final feature – ‘Follower Returns’ is designed to enable investors to coat-tail activist plays, by tracking the performance of activist-targeted stocks in 2013, and providing an aggregated annualized return for each activist. These returns should be treated as a guide only—actual performance figures are likely to cover different periods and include fees, while calculations of individual stock performance do not take dividends into consideration.

 

Carl Icahn

Few can doubt that 2013 was the year of septuagenarian investor, Carl Icahn. Whether in his prolonged battle to prevent the takeover of Dell, or an enviable investment in Netflix that more than quadrupled in value, Icahn has hit all the high notes in the past year. Most notable, perhaps, was a run of campaigns that saw Icahn’s nominees added to the boards of six companies. “There are lots of good CEOs in this country,” Icahn told Activist Insight, “but the management in many companies leaves a lot to be desired. What we do is bring accountability to these underperforming CEOs when we get elected to the boards.” As well as the usual run of TV-interviews, 2013 also saw the launch of The Shareholder’s Square Table website, something that may continue to be a platform in 2014.

Icahn’s ability to make multi-billion dollar investments from his own personal fortune contributed to a trend of activism at large-cap companies in 2013, with Apple and Transocean among those feeling the heat. According to Icahn, “The model we have works so well because there’s a need for it.” With Icahn insistent that activism is anything but a fad, there is little doubt that 2014 will be an equally busy year.

 

ValueAct Capital

ValueAct Capital, led by Jeff Ubben, Mason Morfit and George Hamel Jr, was relatively quiet in 2013, but surprised many when it emerged with a board seat at Microsoft. The activist owns less than 1% of the outstanding common shares, but is believed to be influencing the choice of a new CEO. Microsoft’s strong stock performance may justify this campaign, while Allison Transmission Holdings and Valero Energy have also performed strongly since ValueAct disclosed its investments in each company. Elsewhere, the activist received a sale premium from its investment in Gardner Denver.

Despite its $2.6 billion investment in Microsoft, ValueAct amassed a portfolio of mostly small investments, typically below the 5% threshold for filing a Schedule 13D Form. These might form the basis for its portfolio in 2014, and lead to a number of new campaigns.

 

Third Point Partners

Dan Loeb’s Third Point nearly didn’t survive the financial crisis, but has since roared back to health. Taking activism to Japan with his investment in Sony was a bold step, and perhaps required more courtesy than Loeb showed in October’s public letter to Sotheby’s CEO, Bill Ruprecht. Both campaigns are pending, with Sony opting to cut costs in its Entertainments Division rather than spin off the movie-making arm, and Sotheby’s yet to announce the personnel changes requested by Loeb.

Elsewhere, healthy performance in Nokia and Yahoo! Stocks boosted Third Point’s ‘Follower Returns’, making up for its relatively quiet season pushing for major changes.

 
 

Clinton Group

Greg Taxin’s Clinton Group doesn’t often make the headlines, owing to its preference for the small-cap space. However, the Group’s $1.5 billion in assets under management is widely spread, allowing it to disclose nine new investments and clock up the second highest number of active campaigns, where it publicly pushed for change, in 2013. Indeed, Clinton Group was deeply involved in one of the year’s most difficult proxy contests, eventually winning a majority of seats on the board of Stillwater Mining. In general, the activist is known for its mastery of company by-laws and intense focus on growth strategies. As the year ended, Clinton Group was fighting for change at Violin Memory, Xenoport and ValueVision Media, as well as considering taking Wet Seal private. After seeing investments in Inteliquent and Digital Generation soar earlier in the year, it will be hoping to carry its good form into 2014.

 

Starboard Value

Starboard Value LP busied itself during 2013 with campaigns at OfficeDepot, where it successfully oversaw a merger with Office Max and won board representation, and at Smithfield Foods, where it failed to prevent a takeover bid from Chinese pork-producer, Shanghui. A busy year apparently made for healthy profits, with Starboard Value’s ‘Follower Returns’ showing healthy growth across a number of the stocks the activist invested in.

Starboard Value also won board representation at DSP Group and Wausau Paper during 2013, while disclosing ten new investments. A particularly busy final quarter saw Jeff Smith’s fund launch campaigns to overhaul Compuware, Calgon Carbon and Darden Restaurants, as well as plans for a proxy contest at TriQuint Semiconductor, so 2014 is likely to be equally eventful.

 
 

Elliott Management

Paul Singer’s Elliott Management has become one of the world’s global activists, taking advantage of protections for minority shareholders in takeover situations with several campaigns in Germany during 2013. In the US, Elliott was also busy at Emulex, striking a deal that won board seats and secured a share repurchase program, in return for giving up its campaign to force a sale of the company, and at Hess, where controversy over the activist’s plans to pay its board nominees kick-started an industry-wide debate about anti-activist company bylaws.

The activist’s extensive assets under management allowed it to make three bets worth more than $1 billion in 2013, but its relatively concentrated activities and preference for privacy contributed to a slightly lower-than-expected ranking in our top ten.

 

JANA Partners

JANA Partners, the hedge fund led by Barry Rosenstein, had a successful year despite a number of tough boardroom battles, with a source telling Activist Insight that the fund was happy when companies took credit for the activist’s suggestions. That was the pattern in a number of cases, including Ashland, QEP Resources and Safeway, which all sold or hived-off business divisions. A proxy contest at Agrium marked the first time that JANA had ever gone all the way to a shareholder vote, where its nominees were defeated (though the activist can point to a number of changes announced by the issuer that JANA called for initially).

One issue that forced JANA to take a public stand was criticism of activists remunerating board nominees. The activist says that company bylaws preventing activists from paying their nominees makes it harder to find good candidates and has made clear its intention to oppose the new changes.

 

GAMCO Asset Management

There was little new action for Mario Gabelli’s GAMCO Asset Management in 2013, with relatively few new investments above the reporting threshold. However, the activist investor scored high for the number of changes it sought and achieved in 2013 and for the successful track record of those stocks. GAMCO is known for its focus on corporate governance and has tried to remove several poison pills in the past year, albeit with limited success to date.

The run-up to 2014’s proxy season suggests next year will be equally busy, with proxy contests likely at Sevcon and Telephone & Data Systems, and public letters recently sent to the boards of Griffin Land & Nurseries and Superior Industries International.

 
 
 

Pershing Square Capital Management

Very little seemed to go right for Bill Ackman’s Pershing Square Capital Management in 2013, although stock price increases from several successful engagements the year before were perhaps the activist’s saving grace. Ackman’s disastrous effort to turn around JC Penney along with his public disagreement with everyone from Carl Icahn and Dan Loeb to George Soros over his Herbalife short caused the activist’s ‘Follower Returns’ to be significantly lower than in previous years.

Even so, Ackman hasn’t been hiding away. Following a $2.2 billion investment in Air Products and Chemicals, Ackman promised, “to go to the ends of the earth” to prove his detractors wrong on Herbalife. Pershing Square has also bet $435 million on the recovery of Freddie Mac and Fannie Mae, for reasons yet to be fully explained, and can still cash in its winnings from what was a successful campaign at Canadian Pacific Railway last year.

 

Bulldog Investors

Led by Phil Goldstein and Steven Samuels, Bulldog Investors has long specialized in antagonizing closed-end funds. In a conversation with Activist Insight, Goldstein admitted that despite it becoming easier for the firm to secure the changes it wants because it has gained in credibility and bargaining skills, 2013 was a good time to launch proxy contests at Firsthand Technology Value Fund and Javelin Mortgage Investment. At the year’s end, Bulldog had already settled the latter fight, accepting an enhanced share repurchase program as a compromise. Despite its investments being mostly on the small side, the breadth of Bulldog’s portfolio and frequent successes earn the activist a place in our Top Ten.

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