Where there is smoke there is usually fire. A similar maxim is often true with investors: where one big name goes, others usually follow. It’s something of a law of opportunity, an investor piggy-back clause. People follow success and will ride its coattails. So where Warren Buffet invests, others follow. Where Icahn goes, others go too. With Yahoo (YHOO) the bull's eye in Icahn’s game du jour, that’s not good news for the company’s management.
Icahn announced his intent to wage a proxy fight for Yahoo’s board last week. With the news, it was assured the “piggyback clause” would get invoked; it was as predictable as fireworks on the fourth of July. A proxy fight is all about building consensus. For that, there is strength in numbers.
When an investor like Icahn comes in set on being a catalyst, other hedge fund investors like Paulson and Co, Tudor or Third Point are likely to lend their support too. Together, they’re stronger than standing alone.
With Yahoo, that’s exactly what’s happening. One by one, investors are buying in and pooling their votes together. Last week, hedge fund Paulson and Co announced it had acquired as many as 50 million shares. Oil investor T. Boone Pickens confirmed Tuesday to CNBC that he acquired 10 million shares. In the interview, Pickens said: "(Icahn) jumps in first, I jump in behind him.” Dan Loeb, who runs $5.7 billion hedge fund Third Point LLC, has also stepped in. He was holding a million shares of Yahoo by early April and has since bought as much as five million total.
In sum, Icahn and his band of activist followers have acquired as much as 80 million shares, or more than 5% of Yahoo stock. Some are speculating they may even keep buying until they reach 13 to 14%.
This budding consortium of investors fits right in with Icahn’s recent investment approach. As previously reported on Metue, he seems to look for companies with troubles and begins to buy influence in the form of shareholder votes. His positions might typically range from 3 to 15 percent. These are usually big enough for him to leverage and push management to implement strategies of his suggestion: buybacks, asset divestitures, asset purchases, management reorganizations, or the replacement of boards.
Icahn has explicitly stated his intent here is to get Yahoo back to the bargaining table. This isn’t about a buyback or a reorg. He wants a sale to Microsoft (NASDAQ:MSFT), preferably in the near future.
The trouble with Icahn’s stated plan is Microsoft doesn’t seem to care. Even though they were all for acquiring the company just a few weeks ago, as of now, they really are sticking to the statement that they’ve “moved on.” Speaking from the launch of MSFT’s new Israeli R&D center, Steve Ballmer said as much: “we are trying to have discussions about deals with Yahoo that might create value, but not a whole acquisition of the company,"
Does that mean Yahoo can relax or this short fight might have a short lifespan? Probably far from it. Even with Icahn chasing Yahoo being bad news for the company’s management, or Microsoft’s reluctance to revisit a full acquisition appearing to be bad news for Icahn himself, this is far from over. By any measure, this remains a story to watch.