Partly fueled by Carl Icahn outbursts, the age-old debate about whether activist investors are good or bad for companies and shareholders has cropped up again. Are they short-term bettors who cause drama and then get out of a stock as soon as shares see a pop? Or are they constructive critics who add value, partly by pushing executives and boards to do things they are too complacent to do otherwise?
The answer varies depending on the activist and which company he (it’s usually a he) is targeting. Here’s a rundown on 10 of the most important activists in the US, which is partly based on 13D regulatory filings they have to submit if they’ve amassed at least a 5% stake in a company. (However, investors can still play an activist role with a lesser stake, and some have enough credibility to do so.)
The data are from 13D Monitor and FactSet, and they are listed in alphabetical order. The basic takeaway is that activism pays, especially in down or stagnant markets. How a company’s long-term value is affected is a topic for another discussion—stay tuned.
His public spat with Carl Icahn over Herbalife and his failing bet on JC Penney can make people forget that Ackman has made some shrewd investments. His other successes include the breakup of Jim Beam maker Fortune Brands. And he made a killing on mall operator General Growth Properties as he rode its recovery after bankruptcy; that represents the bulk of the fund’s 13D returns. Ackman has a reputation for arrogance, but also for being a persuasive salesman. Retail seems to be his Achilles’ heel, with investments in Borders and Target also losing out.
Einhorn isn’t normally an activist and he hasn’t filed a 13D in a few years, but he has been known to nominate directors, write letters to management and even offer to buy a company when he feels like it’s moving in the wrong direction. He has enough of a reputation that he has a voice without amassing a large stake. When Einhorn announced he was shorting Green Mountain Coffee and criticized the company’s strategy, shares immediately dropped. He’s been most noticed lately for his push to get Apple to return some of its more than $137 billion in cash to investors. He won a lawsuit in that fight and is sure to claim victory when Apple announces its cash plans, which it will likely do later this spring.
At 77, Icahn seems to be more active than ever, showing up so far this year in Dell, Herbalife and Transocean. Companies know they will have the spotlight on them when Icahn comes along. But sometimes he seems to have no rhyme to his reason, like his push for Clorox to sell itself in 2011 when there were no logical buyers. And lately he’s lost more proxy fights than he has won. People say that’s an example of “Carl being Carl” where he throws spaghetti at a wall and sees what sticks. Since he returned outside investor money in 2011, he seems to be in an even more rambunctious mode, and still keeps to his late night schedule, which means no morning meetings.
Loeb’s fund mainly invests in non-activist situations but because of his high profile, his activist activities get a lot of attention. It was he who outed former Yahoo CEO Scott Thompson’s dubious college degree. That got him on Yahoo’s board, along with two other newcomers, and Marissa Mayer of Google is the new CEO. Loeb is also known for writing public letters that give a tongue lashing to executives and directors, while some of his phone conversations end with one of the parties hanging up on the other.
Peltz used to be known as a corporate raider with whom boards and CEOs usually did not get along. But he’s evolved over the years and is more open to working with companies. Prime example is Heinz, which recently got sold to Warren Buffett’s Berkshire Hathaway and Brazil’s 3G Capital. He and Heinz CEO Bill Johnson were mortal enemies during their proxy fight in 2006, but Peltz came to be seen as a helpful Heinz board member and he now praises Johnson. Like Icahn, Peltz hasn’t let his age slow him down (he’s 72) and can tell you in detail about how Wendy’s, a Trian investment, makes its burgers. But his son-in-law Ed Garden, who is chief investment officer, has played an increasingly bigger role. Trian president Peter May is also active, with board seats at Tiffany and Wendy’s.
Rosenstein isn’t a household name like Icahn nor does he strive to be. But Jana does get involved in well known companies, like McGraw-Hill and Marathon Petroleum. Jana often comes armed with detailed white papers on a company’s financial and prospects. Although they are usually seen as constructive critics who are open to working with management, they are also known to be persistent and aren’t afraid to get into a fight, as they did with TNT Express and currently with Canada’s Agrium.
Elliott is known to be tough on companies and sometimes offers to buy the firms it targets, like Compuware (which said no). It has focused on several tech companies, like BMC Software, but also has investments in other sectors. It is currently embroiled in a fight with energy company Hess, pushing for board changes or a sale or spin-off of some assets. It hasn’t reached the 5% threshold to file a 13D, but recently increased its stake to 4.39%.
Starboard is a young activist fund, having spun off from Ramius in 2011, and focuses on small-cap companies. But Ramius was known to cause a stir at many companies and that tradition seems to be carrying on. Despite its newcomer status, Starboard quickly went after well known companies like AOL, but lost its proxy fight there. More recently, it pushed Office Depot to cut costs and the office supplier later announced a deal with OfficeMax.
The fund isn’t as well known as some of its brethren but is very active in the companies it gets involved in, and is on the board of about half of its portfolio companies. It typically looks at companies that it thinks are undervalued, usually because the firms are going through a major transition or have fallen out of favor, but still have growth potential. Some of its targets include tech firm Adobe Systems, Moody’s (video) and Motorola Solutions. But companies usually don’t shudder when ValueAct comes along, since it has a reputation for working with management and boards.
Although Whitworth is a well known name in the activist crowd, he isn’t seen as a lighting rod like Icahn or Ackman. Relational is known for doing its homework and usually presents a sober view of a company. Besides pushing companies on a break-up or sale, Relational also sometimes goes after corporate governance issues, like criticizing the pay for former Occidental Petroleum (paywall) CEO Ray Irani and his lack of succession planning. Whitworth has enough credibility that even when he has only a small stake in companies, like Hewlett-Packard or Pepsi, CEOs still listen.