Editor’s Note: Martin Lipton
is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. The following post is based on a Wachtell Lipton memorandum by Mr. Lipton and Sabastian V. Niles
This year has seen a continuance of the high and increasing level of activist campaigns experienced during the last 14 years, from 27 in 2000 to more than 200 in 2013, in addition to numerous undisclosed behind-the-scenes situations. No company is too big to become the target of an activist, and even companies with sterling corporate governance practices and positive share price performance, including outperformance of peers, may be targeted. Among the major companies that have been attacked are Apple, Microsoft, Sony, Hess, P&G, Transocean, ITW, DuPont, PepsiCo, Kraft and EADS. There are more than 100 hedge funds that have engaged in activism. Activist hedge funds have approximately $100 billion of assets under management. They have become an “asset class” that is attracting investment from major traditional institutional investors.
The major activist hedge funds are very experienced and sophisticated with professional analysts, traders, bankers and senior partners that rival the leading investment banks. They produce detailed analyses (“white papers”) of a target’s management, operations, capital structure and strategy designed to show that the changes they propose would quickly boost shareholder value. Some activist attacks are designed to facilitate a takeover or to force a sale of the target, such as the failed Icahn attack on Clorox. Prominent institutional investors and strategic acquirors have been working with activists both behind the scenes and by partnering in sponsoring an activist attack such as CalSTRS with Relational in attacking Timken, and Ontario Teachers’ Pension Fund with Pershing Square in attacking Canadian Pacific. Major investment banks, law firms, proxy solicitors, and public relations advisors are now representing activists.
Among the attack devices being used by activists are:
…continue reading: Dealing With Activist Hedge Funds