A new wrinkle in activism
Hedge fund managers are getting back in the innovation game — or at least Bill Ackman is. Yesterday, Ackman announced that he and Valeant Pharmaceuticals were making a $50 billion hostile bid for Allergan, the maker of Botox. Ackman also announced that his hedge fund owns a 9.7% stake in Allergan. Allergan quickly did what the targets of hostile takeovers do and adopted a poison pill to keep any unapproved investor from owning more than 10% of its shares.
Steven Davidoff says the bid shows that activist investors are becoming “a ready arsenal of capital that can be used to aid hostile takeovers by corporations”. Valeant itself, Breakingviews’ Robert Cyran and Richard Beales say, “is essentially the creation of an activist hedge fund, ValueAct Capital, which set it on the path of serial deal-making”.
Ackman’s invention (or re-imagining of the go-go 80’s) arose from a problem: his ideas have become too popular. “Activists generally think of themselves as outsiders, but the WSJ’s Dennis Berman thinks the activist investor playbook is now another form of managerial boilerplate:
Their agenda—buybacks and dividends, cost-cutting and tax gambits—has hardened into the default boardroom agenda, too… That’s precisely the problem. Just what does an activist do when investing and activist investing have nearly become one and the same? What’s the value of an activist when most boards have already internalized the activist credo?
The answer, Berman says, is do pretty much what Ackman is doing: tinker and micromanage, act like a consultant or an assertive head of corporate development. It is harder, after all, to shout about returning cash to shareholders or adding leverage whendividend increases and corporate bond sales are at record levels.
One person not on Ackman’s side is Jim Cramer, who despite professing his love of mergers and acquisitions, says Ackman is underestimating the value and range of businesses Allergan’s management team has built. Carl Icahn drank a martini and supported Ackman, while ripping into anti-activist corporate lawyer Marty Lipton. Novel tactics make novel allies.
Whether Ackman is any good at his new tactics is unclear. Last year, James Surowiecki wrote that Ackman overstretched in thinking “that he knew what it took to run, let alone turn around, a major retailer” in JC Penney. Ackman, says Surowiecki, is a solid investor, but seems unhelpfully attached to the idea that he is a “strategic visionary”. Which is exactly the role he’s attempting to play for both Allergan and Valeant. — Ben Walsh
On to today’s links:
It’s hard to get Aereo right when no one in the courtroom understands technology -Sarah Jeong
“Tired hacks have a near-monopoly on political opinion writing in the most important newspaper in the world” - Alex Pareene