Posts Tagged ‘Hedge funds’

Do Activist Hedge Funds Really Create Long Term Value?

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Tuesday July 22, 2014 at 3:55 pm
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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. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Steven A. Rosenblum that replies to the recently-issued empirical study by Lucian Bebchuk, Alon Brav, and Wei Jiang on the long-term effects of hedge fund activism. The study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article.

About a year ago, Professor Lucian Bebchuk took to the pages of the Wall Street Journal to declare that he had conducted a study that he claimed proved that activist hedge funds are good for companies and the economy. Not being statisticians or econometricians, we did not respond by trying to conduct a study proving the opposite. Instead, we pointed out some of the more obvious methodological flaws in Professor Bebchuk’s study, as well as some observations from our years of real-world experience that lead us to believe that the short-term influence of activist hedge funds has been, and continues to be, profoundly destructive to the long-term health of companies and the American economy.

…continue reading: Do Activist Hedge Funds Really Create Long Term Value?

Hushmail: Are Activist Hedge Funds Breaking Bad?

Editor’s Note: Mark D. Gerstein is a partner in the Chicago office of Latham & Watkins LLP and Global Chair of that firm’s Mergers and Acquisitions Group. This post is based on a Latham & Watkins M&A Commentary by Mr. Gerstein, Bradley C. Faris, Timothy P. FitzSimons, and John M. Newell. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Increasingly, some activist hedge funds are looking to sell their stock positions back to target companies. How should the board respond to hushmail?

The Rise and Fall of Greenmail

During the heyday of takeovers in the 1980s, so-called corporate raiders would often amass a sizable stock position in a target company, and then threaten or commence a hostile offer for the company. In some cases, the bidder would then approach the target and offer to drop the hostile bid if the target bought back its stock at a significant premium to current market prices. Since target companies had fewer available takeover defenses at that time to fend off opportunistic hostile offers and other abusive takeover transactions, the company might agree to repurchase the shares in order to entice the bidder to withdraw. This practice was referred to as “greenmail,” and some corporate raiders found greenmail easier, and more profitable, than the hostile takeover itself.

…continue reading: Hushmail: Are Activist Hedge Funds Breaking Bad?

Shareholder Activism in Germany

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday June 7, 2014 at 9:05 am
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Editor’s Note: The following post comes to us from Dirk Besse, at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Besse and Moritz Heuser.

Over the past few years there has been a noticeable increase in the frequency of activist investors building up considerable stakes in German listed companies in the context of public takeovers. One reason for this development is what appears to be a new business model of hedge funds—the realization of profits through litigation after the completion of a takeover. To this end, the funds take advantage of minority shareholder rights granted under German stock corporation law in connection with certain corporate measures which are likely to be implemented for business integration purposes following a successful takeover.

…continue reading: Shareholder Activism in Germany

Activist Hedge Funds Find Ways to Profit from M&A Transactions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday June 4, 2014 at 9:28 am
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Editor’s Note: The following post comes to us from Spencer D. Klein, partner in the Corporate Department and co-chair of the global Mergers & Acquisitions Group at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Klein, Enrico Granata, and Isaac Young; the complete publication, including footnotes, is available here.

Activist hedge funds continue to find ways to use public M&A transactions as a tool to generate returns for their investors. As a result, market participants need to consider potential activist strategies in determining how to structure, announce and execute their deals.

Activists have used three principal strategies to extract additional value from public M&A transactions. The first strategy involves directly challenging the announced deal in an effort to extract a higher price, defeat the merger and/or pursue an alternative transaction or stand-alone strategy. The second strategy involves attempting to use statutory appraisal rights to create value for the activist. And the third strategy involves making an unsolicited offer to acquire a target, either independently or in conjunction with a strategic acquirer, to put the target in play. In this article, we discuss examples of recent uses of these strategies by activist investors and point out some general implications of these examples for transaction planners.

…continue reading: Activist Hedge Funds Find Ways to Profit from M&A Transactions

Communications Challenges of the Valeant/Pershing Square Bid for Allergan

Editor’s Note: Charles Nathan is partner and head of the Corporate Governance Practice at RLM Finsbury. This post is based on an RLM Finsbury commentary by Mr. Nathan.

The bid by Valeant and Pershing Square to acquire Allergan has made a very big splash in the M&A and corporate governance world. In brief, Pershing and Valeant have teamed up in a campaign to pressure Allergan to sell to Valeant in an unsolicited cash and stock deal. What distinguishes the Valeant/Pershing deal from a conventional public bear hug (such as Pfizer’s recent effort to acquire AstraZeneca) is that, by pre-arrangement, Pershing Square acquired a 9.7% equity stake in Allergan immediately prior to the first public announcement of Valeant’s bear hug. This unusual deal structure is a first and, if successful, may pioneer a new paradigm for unsolicited takeovers of public companies.

…continue reading: Communications Challenges of the Valeant/Pershing Square Bid for Allergan

The Activism of Carl Icahn and Bill Ackman

Editor’s Note: Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by Richard Lee and Jason D. Schloetzer, both of Georgetown University. The complete publication, including footnotes, is available here. Recent work from the Program on Corporate Governance about hedge fund activism includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon P. Brav, and Wei Jiang.

Activist hedge funds merit the attention of corporate directors, as the value of the assets under management increases and activist funds’ targets expand well beyond small capitalization companies. This post reviews the tactics used by two prominent activist hedge fund managers to create change in 13 companies in their portfolio and highlights four perceived governance failures at target companies that attracted activist funds’ attention. This post also includes a review of characteristics of activist hedge funds, the incentives their managers have to generate positive returns, and current research investigating whether and how hedge fund activism affects target companies.

…continue reading: The Activism of Carl Icahn and Bill Ackman

Curbing Short-Termism in Corporate America: Focus on Executive Compensation

Posted by Robert C. Pozen, Harvard Business School, on Thursday May 8, 2014 at 9:21 am
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Editor’s Note: Robert Pozen is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution.

The protest against short termism in corporate America is rising. Business and political leaders are decrying the emphasis on quarterly results—which they claim is preventing corporations from making long-term investments needed for sustainable growth.

However, these critics of short termism have a skewed view of the facts and there are logical flaws in their arguments. Moreover, their proposals would dramatically cut back on shareholder rights to hold companies accountable.

The critics of short termism stress how much the average daily share volume has increased over the last few decades. Although this is factually correct, this sharp average increase is caused primarily by a tremendous rise in intraday trading.

…continue reading: Curbing Short-Termism in Corporate America: Focus on Executive Compensation

Schedule 13D Ten-Day Window and Other Issues: Will the Pershing Square/Valeant Accumulation of a 9.7% Stake in Allergan Lead to Regulatory Action?

Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow and Christopher Austin that was issued on April 24, 2014.

As widely reported, a vehicle formed by Pershing Square and Valeant Pharmaceuticals acquired just under 5% of Allergan’s shares after Allergan apparently rebuffed confidential efforts by Valeant to get Allergan to negotiate a potential acquisition. The Pershing Square/Valeant vehicle then crossed the 5% threshold and nearly doubled its stake (to 9.7%) over the next ten days, at which point it made the required Schedule 13D disclosures regarding the accumulation and Valeant’s plans to publicly propose an acquisition of Allergan. The acquisition program has raised a number of questions.

…continue reading: Schedule 13D Ten-Day Window and Other Issues: Will the Pershing Square/Valeant Accumulation of a 9.7% Stake in Allergan Lead to Regulatory Action?

A New Takeover Threat: Symbiotic Activism

Editor’s Note: Trevor Norwitz is a partner in the Corporate Department at Wachtell, Lipton, Rosen & Katz, where he focuses on mergers and acquisitions, corporate governance and securities law matters. The following post is based on a Wachtell Lipton firm memorandum by Martin Lipton, Adam O. Emmerich, Mr. Norwitz, and Sabastian V. Niles.

The Pershing Square-Valeant hostile bid for Allergan has captured the imagination. Other companies are wondering whether they too will wake up one morning to find a raider-activist tag-team wielding a stealth block of their stock. Serial acquirers are asking whether they should be looking to take advantage of this new maneuver. Speculation and rumor abound of other raider-activist pairings and other targets.

Questions of legality are also being raised. Pershing Square and Valeant are loudly proclaiming that they have very cleverly (and profitably) navigated their way through a series of loopholes to create a new template for hostile acquisitions, one in which the strategic bidder cannot lose and the activist greatly increases its odds of catalyzing a quick profit-yielding event, investing and striking deals on both sides of a transaction in advance of a public announcement.

…continue reading: A New Takeover Threat: Symbiotic Activism

Shareholder Voting in an Age of Intermediary Capitalism

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday April 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Paul H. Edelman and Randall S. Thomas, Professor of Law and Mathematics and Professor of Law and Business, respectively, at Vanderbilt University, and Robert Thompson, Professor of Business Law at the Georgetown University Law Center.

Shareholder voting, once given up for dead as a vestige or ritual of little practical importance, has come roaring back as a key part of American corporate governance. Where once voting was limited to uncontested annual election of directors, it is now common to see short slate proxy contests, board declassification proposals, and “Say on Pay” votes occurring at public companies. The surge in the importance of shareholder voting has caused increased conflict between shareholders and directors, a tension well-illustrated in recent high profile voting fights in takeovers (e.g. Dell) and in the growing role for Say on Pay votes. Yet, despite the obvious importance of shareholder voting, none of the existing corporate law theories coherently justify it.

…continue reading: Shareholder Voting in an Age of Intermediary Capitalism

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