New York Times DealBook, March 28, 2014 article: "A Boom Now, but Hurdles Ahead for Activist Investors" [Professional views of activist bubble and "less-than-intelligent" contestants]

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Source: New York Times DealBook, March 28, 2014 article

Hedge Funds | Tulane Business Forum

A Boom Now, but Hurdles Ahead for Activist Investors

By MICHAEL J. DE LA MERCED March 28, 2014, 6:27 am

NEW ORLEANS — It’s a great time to be an activist, but there are signs that things will get a little bumpier.

At the Tulane Corporate Law Institute here, that was the viewpoint of advisers to both hedge funds and to the companies they seek to shake up.

For now, activists are doing well, members of a panel discussion on the topic agreed. Nearly two-thirds of proxy fights are settled, with hedge funds getting at least a seat on corporate boards.

Why? In part because they have such strong support from other investors. Victor Lewkow, a partner at Cleary Gottlieb Steen & Hamilton, cited a recent article in DealBook, noting that institutional investors feel more emboldened not only in supporting activists, but also in sometimes giving them tips.

“It’s unfortunate, but if you look at shareholders lists, there’s no one there you can count on,” said Daniel Burch, the chief executive of the proxy solicitor MacKenzie Partners. “You may be starting at 30 percent against you and you don’t have anyone on your side.”

And Joele Frank, the founder of the public relations firm Joele Frank, Wilkinson, Brimmer, Katcher, added: “We used to have a 50-50 shot of winning. Until this year.”

Such is the state of activist confidence that many are now seeking majority control of a board, rather than seeking a “short slate” of a few directors.

But there were also some notes of caution, including from an adviser to activists. As activism’s popularity has grown, so have the number of new entrants into the field, many who aren’t as talented as proven winners like Carl C. Icahn or William A. Ackman.

“A lot of people coming to this space where I question their skills,” said Steve Wolosky, a partner at Olshan Frome Wolosky and a frequent adviser to activists. “I do have concern about less-than-intelligent activists.”

And much of what dissident investors have demanded in recent years — returning cash to investors through dividends or buybacks — has already been done. “Balance sheet activism” will always be around, the panelists said, but hedge funds are turning to operational activism, a more difficult task.

Coupled with the growth in activist funds, there may be fewer opportunities for those who fancy themselves the next Daniel S. Loeb.

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