Relations between public companies and activist hedge funds have been oft marred by mutual fear, loathing and a good measure of mudslinging. But a sea change may be in the works as companies recognize the growing influence of activist funds. The final version of a long-awaited report on the topic by the Conference Board Working Group on Hedge Fund Activism urges corporations to acknowledge what activists bring to the table.
Many in the hedge fund industry applaud the recommendations, particularly the emphasis on talking it out as opposed to such old-line responses as poison pills and staggered boards. Many managers point out that activist shareholders — like Nelson Peltz of Trion Group and Relational Investors’ Ralph Whitworth — are loyal long-term investors who are seeking to unlock the deep potential of large-cap stocks.
“The report could result in better management and better shareholder value because it points out the value to management of assessing those places where it may be vulnerable,” says Mitchell Nichter, a partner at law firm Paul, Hastings, Janofsky & Walker in San Franciso.
Kevin Dolan, CEO of La Fayette Investment Management (UK), a $3.3 billion London-based fund of funds, embraces what he calls “operational activists” — patient, long-term investors who shun publicity and avoid confrontation. Current market conditions offer great opportunities for activists who can create value by investing in high-EBITDA, large-cap stocks trading at low multiples. “You’re not going to be seeing private equity funds buying out these kinds of large-cap stocks, for the simple reason that there is no financing available, nor will there be any for quite some time,” Dolan says. Translation: “Operational activists will hold sway.”
