Activist investing has come a long way since Gordon Gekko was explaining the merits of greed to shareholders of the fictional Teldar Paper in 1987. Then it was all about “greenmail” and hot tips but today activist investing is characterized by billionaire investors lecturing CEOs on the art of creating shareholder value.
In the attached clip Jason Trennert of Strategas says the activist investing trend is still picking up steam. “Activist strategies within the hedge fund complex have been among the best performing. As a result they’re attracting enough capital so that it really matters.”
With hedge funds being prodded into taking a more aggressive stance towards companies in their portfolio the rules of activism have changed. Back when he was a corporate raider Carl Icahn (IEP) would target struggling companies like TWA and lead a charge against incumbent management with the idea that he could do better. Today Icahn is able to go after Apple (AAPL), literally the most profitable company in the world and actually have influence.
“A company that has $150 billion in cash could easily tell an activist to go jump in a lake but it’s not happening,” Trennert notes, “It would be unwise to not take this seriously as a major investing theme.”
The folks at Herbalife (HLF) are certainly taking activists seriously. After existing more or less unchallenged for more than 30 years Herbalife came under attack by Bill Ackman in late 2012. Today Herbalife is being investigated by the FTC, FBI and NY Attorney General, accused of being a pyramid scheme. Whether or not Ackman should have that kind of influence is almost beside the point. The fact that he does means the game has changed and investors need to position themselves accordingly.
As for Trennert he sees the growing influence of the Icahn’s and Ackman’s of the world as being good for markets. The main shared characteristic of companies targeted by activists is inefficiency and cash hoarding. Activists aren’t always right but challenging insular boards and their often stale ways of doing business tends to be a good thing for most of the people involved, including other shareholders.
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