Corporate America’s battle with activist investors is increasingly being fought across the deal table rather than the boardroom, according to new research.

February 9, 2014 6:59 pm

Activist investors force higher price takeovers

By Ed Hammond in New York

Corporate America’s battle with activist investors is increasingly being fought across the deal table rather than the boardroom, according to new research.

There has been a surge in the number of campaigns to force companies to pay higher prices when taking over a competitor.

In the first 10 months of 2013, hedge funds pushed for higher prices in 14 takeover attempts, achieving success in 10, according to a study from Wall Street law firm Simpson, Thacher & Bartlett.

The increase in the number of campaigns – and their success rate – is pronounced: in 2012, only one of the four campaigns to lift the price of a target company was successful.

Agitating for higher deal prices, or so-called “bumpitrage”, combines the activist predilection for audacity with the traditional practice of arbitrage by investors, who buy into a target company in the hope of the shares being acquired at a premium.

Recent successful campaigns include those against themerger of MetroPCS and T-Mobile US last year

andMcKesson’s $8.6bn takeover of rival drugs distributor Celesio.

Activist investor Carl Icahn mounted a successful campaign during Michael Dell’s $24.9bn buyout of the computer maker that bears his name.

After months of public fighting over the future of the business with Mr Icahn, Mr Dell and his private equity backers bumped the price to $13.88 a share from $13.65 a share. Both sides claimed a victory.

“Someone like me is not going to show up in a deal unless it’s obvious that a company is being sold too cheap,” said Mr Icahn.

“Dell was different from a classic move just to raise the price of the bid; I was prepared to invest $4bn of our own capital to make a counter-offer because we thought Michael Dell was buying it too cheaply”.

The growing success that activists enjoy in forcing higher takeout prices also reflects the rise of the industry. At the end of 2013, US activist funds had more than $90bn of assets under management, up from $39bn at the end of 2009.

“Every deal that I am working on now, the issue of whether an activist turns up in the stock and starts pushing for a higher price is one concerning boards and management,” said Mario Ponce, a partner at Simpson Thacher.

“The six million dollar question is whether this will have a chilling effect on M&A,” said Mr Ponce. “It hasn’t yet, but the spectre of it is hanging over certain types of transactions and that could spread doubt.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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