| Nelson Peltz & William Ackman (CNBC) |
Wednesday’s Delivering Alpha conference was a showcase for titans of the hedge fund world to discuss their strategies and views on the economy, but at times the stage also served as a venue for soul-searching about activism. The conference, held at the Pierre Hotel in Manhattan, began with Pershing Square Capital Management’s William Ackman and Nelson Peltz of Trian Fund Management discussing recent investments and activist moves. On the subject of Peltz’s recent tussle with DuPont, which he lost in May when Trian failed to put Peltz and three other nominees on the company’s board, Ackman dismissed the proxy fight as “too personal.”
“If I were to run a company, I’d be glad to have Nelson on my board,” said Ackman, setting the tone for what would be a day of relatively tranquil comments from activist managers, who are often seen as combative (as was the case during a very heated exchange at the end of the day between Carl Icahn and BlackRock CEO Larry Fink). The activist founders and managers who took the stage Wednesday insisted that they don’t like fighting, and many are concerned about the hostile headlines about recent proxy contests.
“What really troubles me is all the mudslinging that goes on toward activists,” Peltz said, lamenting labels such as “Raiders of the 80s,” a term used to describe activist shareholders who went on stock buying sprees and shook up dozens of companies during that decade. When Jim Cramer, host of CNBC’s Mad Money and co-anchor of Squawk on the Street, suggested that Peltz was indeed part of that club, Peltz retorted that he did an unsolicited takeover at National Can Corporation in 1985, but it remained a public company, the CEO stayed on and the parties “never had a lawsuit.”
Even Jeffrey Smith of New York-based Starboard Value, who has been in the headlines frequently in recent months as he sought to influence major decisions at Darden Restaurants, Staples and Yahoo!, said he doesn’t ever enter an investment looking for a fight. Smith disclosed Starboard’s new stake in Macy’s, during a panel of best ideas from activist investors, arguing that the department store company’s stock, which traded at about $66 per share at the open Wednesday, was worth closer to $125 thanks to its real estate holdings. Though the share price shot up 8 percent on the news of Smith’s presentation, CNBC’s Cramer questioned whether this was a hostile move, noting that Macy’s executives had recently indicated they’d prefer to sell individual properties rather than spin off their real estate business as Smith was suggesting. When asked if he was willing to undertake a proxy fight with Macy’s, Smith said he was “willing to do whatever is necessary to increase value for the best interests of shareholders.”
While it’s clear that Smith won’t rule out a hostile move now and again, he assured Cramer and the audience Wednesday that Starboard goes into every situation believing it will be able to work with management, but that it has to prepare for disagreements.
“We don’t fight contests just to fight contests and we don’t measure success just by getting on boards,” Smith said, noting that when Yahoo! CEO Marissa Mayer announced that the company would spin off its stake in Alibaba Holdings, a move Starboard had been pushing, the firm backed off.
Others echoed Smith’s belief in measured activism, and some managers are particularly optimistic about the future of the strategy now that more shareholders seem to be getting on board.
“The real untold story of activist-led capital market activity is that the average shareholder is acting more like an active owner,” Keith Meister, founder of Corvex Management, said after presenting his firm’s investment in American Realty Capital Properties. “That’s a really, really good thing. The activists on the stage are just their ringleader, and I don’t want to see that spring back.”
At the end of the day, a debate between Icahn and Fink that was meant to be about the value of activism devolved into a spat over high-yield bonds. Before the verbal sparring commenced, however, Fink expressed concern about the role activist investment has played in many companies’ stock repurchases, saying this “could be one of the reasons why we have a below trend line economy. We aren’t investing for the future as much as we should.”
Icahn disagreed and called BlackRock “an extremely dangerous company” for selling products many investors may see as more liquid than they are, being tied to high-yield bonds.
As things began to get more heated, Fink, trying to bring the subject back to activism, said he was worried about activists who seemed increasingly focused on “short term proxy and harassment.” It’s a concern at least some of his peers seem to share.
