- Activists add value for all share holders.
- Management more receptive now than used to be.
- Activist funds will grow in number over the next four years.
The Milken Institute hosted a panel on activist investing April 29, 2014 in Beverly Hills, California. The panel was hosted by Christopher Ailman, CIO of California State Teachers' Retirement System (CalSTRS). Members of the panel included: Clifton Robbins (Blue Harbour Group), Barry Rosenstein (JANA Partners), Chris Teets (Red Mountain Capital), and Jeffrey Ubben (ValueAct Capital).
The panel was asked how they approached management and their styles in changing the way companies work. Most activists on this panel are not as abrasive as Carl Icahn. Robbins stays away from companies that have boards and management that are not receptive to ideas. Rosenstein was probably the most active manager on the panel. He said that JANA was not afraid to wage a proxy war. Ubben considers himself more of a long term investor than an activist. ValueAct has had five investments that have been held eight years or longer with internal rates of return north of 20%. All agreed that it was inappropriate to issue a press release before engaging management.
The panel also seemed to think that the different types of activists all added value. Activists range from super aggressive like Carl Icahn to passive like Blue Habour. The range of activists are adding value for shareholders. Other large asset firms like Fidelity and the Capital Group are more likely to side with activists than in the past so a 1% holding is enough to get a foothold in many companies. Rosenstein said that they are better than the corporate raiders of the 1980s because all shareholders benefit.
Ailman recommended to any pensions in the audience that they become more active in their holdings. He said that CalSTRS was an activist only with a 30 year time horizon for investments.
Activist investing has evolved over the past few years. Management does not install poison pills, change bylaws, and call the SEC like it used to, according to Rosenstein. Everyone on the panel felt that most times, management is more receptive to ideas. Rosenstein joked that the best approach was to let management take credit and/or make them think the idea was theirs.
Ailman asked if Herbalife (NYSE:HLF) was a Ponzi scheme. Rosenstein responded that he was an early investor and thought that it was a good investment. Ubben and the rest of the panel seemed to concur. Here is a link on Seeking Alpha to Herbalife.
Ubben criticized Corex for forcing ADT (NYSE:ADT) to load up on debt and then abruptly sold shares. He feels that it was a short term move that did not behoove the company.
Rosenstein listed Safeway as a successful investment. JANA showed management that in some states like California and Oregon, the company showed great growth and had good margins. In other states like Illinois and Texas, Safeway lagged. JANA also encouraged to sell off non-core divisions like Blackhawk Network Holdings (NASDAQ:HAWK). As a result, Safeway was bought out by Cerberus.
The only warning was from Ubben. He said that he had seen green mail through his privileged seat on boards. Green mail is when activists force management to buy back at higher shares to make them go away. He warned to "not kill the golden goose".
Overall, the panel thought that the activist space would grow over the next four years. They also seemed to think that activists improved investing as they make management work for shareholders. And when the activists sold shares, management still had shareholders in mind.