Shareholder activism

November 30, 2005 10:17 AM

Carl Icahn's Time Warner efforts find a powerful ally in "white-shoe" investment bank Lazard. Wall Street M&A advisors have been hesitant to support efforts by Icahn and his hedge fund brethren in their share-holder activist efforts for fear of alienating fee-paying corporate clients (investment banking, legal and registration fees on the Time Warner/AOL deal were approximately $300 million). By hiring Lazard, which is led by banking legend Bruce Wasserstein (1,2,3), Icahn is surely raising the intensity of his campaign against Time Warner management. Icahn has been successful in previous shareholder activist campaigns, most notably against Blockbuster (1,2), and talks a pretty mean game. Wall Street will be watching this closely - hedge fund activism is becoming a very real fear for company management/directors: Circuit City/Highfields Capital, Wendy's/Pershing, Bally's Fitness/Pardus Capital & Liberation Investment Group, Axciom/ValueAct Capital, MSC Software/ValueAct Capital (reg. required), Beazer Homes/Tontine Capital (second story on page) and more.
posted by mullacc (9 comments total)

Screw this shitbird... this company is finally back on it's feet after the disastrous AOL merger. The employees feel like they can trust the management to do things in their best interest again, instead of bending them over for the profit of the shareholders.

Fuck this guy. People like this turn companies into terrible places to work. A company is successful if it treats it's employees with respect and care... not pulling every greasy trick in the book to up it's stock price.

Where can I get this guy's mailing address? I wanna poop in a bag and send it to him...
posted by BobFrapples at 10:37 AM on November 30, 2005

So I read up on all the links and I am left thinking this guy's interest is the stock price and not the actual performance of the company. So yeah, right, it's like Gorden Gecko over and over again. Is it the American way? I guess it is. Does he have a point that there may be some dumbies at the top of TW? I guess he could. Do I like the idea of public shareholders trying to take over a company? Well, if you're going to become a publicly traded company..
posted by cavalier at 11:26 AM on November 30, 2005

People like this turn companies into terrible places to work. A company is successful if it treats it's employees with respect and care...

Financial buyers (rather than trade buyers) are known to sweat assets harder during their c.five years investment period but it may be the case that management can treat their people with respect and care better if they are in their own separate spun-off company (with direct ownership) than in a forgotten and unloved division that is considered non-core.

I'm not a big fan of corporate raiders in particular, and efforts to increase shareholder value tend to involve vast cost-cutting and other misery, but massive conglomerates are not necessarily better places to work than smaller companies. It's hardly a "greasy trick" to try to increase the value of a company which has seen its share price fall 85% in four years.

The story is also interesting, as the NYT article points out, in highlighting the increasing importance to banks of hedge funds and the prime brokerage fees they generate. The tie-up between Lazard & Icahn will become a more common phenomenon in the future as hedge funds' importance grows yet further. The bet the bank makes is not only do possibly get the hedge fund's brokerage business directly but possibly get the mandate for the spin-off/IPO etc if the hedge fund wins. Given the kind of cash swilling round in hedge funds at the moment, they're only going to win more and more often.

Shareholder activism is, of course, not new though - Calpers has been at it for years, though in a different way and with varying effects).

(Apologies if some links need registration)
posted by patricio at 11:59 AM on November 30, 2005

Icahn can suck it. He bought TWA when it was doing just fine (low stock price - high asset value) and sold off all of the underpriced assets to his own holding company at pennies on the dollar. Then he leased back all of the assets at a heavy price to his own company all the while cutting employee salary and benefits until he had raped the company of every penny. Thus, no more TWA.

I would like to organ farm this fine gentleman.
posted by guruguy9 at 12:16 PM on November 30, 2005

try to increase the value of a company which has seen its share price fall 85% in four years.

The share price fell around 95% 4 years ago, when they first completed the asshead merger. Since then it's been rebounding slowly, as they purge more and more of the AOL morons out of the upper levels of management. The company is getting stronger each year and, contrary to the "bloated bureaucracy" comments, quite lean.

Parsons has actually done quite an impressive job bringing us back from the brink. For this guy to want to oust him shows he hasn't the slightest care what is actually in the nest interests of Time Warner... he's just seeing dollar signs.
posted by BobFrapples at 12:16 PM on November 30, 2005

best... best interests.

argh
posted by BobFrapples at 12:17 PM on November 30, 2005

patricio: Lazard's equity desk is pretty small (and dare I say, maybe even weak too). From what I've heard anyway, I don't have any back-up for that. It is almost a pure advisory business. If there's an IPO to be done, surely Lazard would like a chunk of it but it wouldn't expect to lead it.

I'm sure the banks are eager to please hedge funds and rake in the brokerage business - but, I'd guess that the banks are just as important to hedge funds as the fees are to the banks. It's much easier to be secretive when you can spread your business amongst several large desks (Goldman, Citi, etc.).

As for Icahn - the comments here are interesting to me and they are why I posted this to MeFi. For the average investor, guys like Icahn sound pretty good since it is only share price that matters to them. But the "average" investor's interests can be at odds with the "average" employee. Icahn is trying to come off as a Spitzer-like reformer and save Mom & Pop's 401k from the greedy, entrenched CEOs of the world.
posted by mullacc at 1:38 PM on November 30, 2005

Great post. Interesting comments. I've learnt something today.
posted by uncanny hengeman at 7:15 PM on November 30, 2005

Great post.
posted by Falconetti at 8:40 PM on November 30, 2005