News

August 10, 2015

Bruce Goldfarb talks to the Financial Times about a new approach by activist investors

masthead_main

Activist investors learn to mind their manners

Investors are realising they can have more success outside the US by taking a different approach

By Stephen Foley, Kana Inagaki, Arash Massoudi and Miles Johnson

It is enough to flummox the most advanced student of stylometry; enough, even, to confound a computer programmed with the latest algorithm for textual analysis.

Daniel Loeb used to lace his letters to chief executives with poison, lambasting one for having “feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars”, while suggesting another be “shown the door . . . accompanied by a well worn boot planted in the backside”.

So surely this is not the same Daniel Loeb who this week wrote to the management at his latest investment, in the medical supplies company Baxter International, to praise their “immense focus and detailed execution”? The hedge fund manager wants two seats for his fund on Baxter’s board, and a say in the hiring of the company’s new chief executive, and he has calculated he is much more likely to get what he wants by playing nice.

Mr Loeb’s softer tone reflects an evolution among the American hedge fund managers who pioneered activist investing but whose new, civilised mien is winning them more corporate battles in the US than they ever did with poison pen letters.

It has also meant that their activism is more easily exportable, more pliable and better able to go with the grain of investment in the countries of Asia and Europe.

Change of approach

In the past 10 days, the San Francisco-based fund ValueAct — run by Jeff Ubben, one of the few activists who always made it a point not to speak ill of a management in public — has been more or less openly welcomed on to the shareholder register by the boards of Rolls-Royce and the UK’s Smiths Group .

Meanwhile, activist campaigns are on the rise in Asia, especially in Japan but in China, too. After years being bellicose but trapped at the US border, American hedge fund managers have found that politeness is helping them make strides across the globe.

Mr Loeb surprised the sceptics with his success in prodding one of Japan’s most reclusive companies to open up to shareholders. In February, Third Point — Mr Loeb’s hedge fund — disclosed a stake in robot maker Fanuc, urging it to make better use of its cash pile. Two months later, the company, long known for shunning dialogue with investors, promised to double its dividend payout ratio and set up a new division to engage with shareholders.

So when Mr Loeb disclosed a new stake in Suzuki Motor earlier this week, the news alone was enough to boost the company’s shares to a record high. The expectation is that he will be successful in persuading the motorcycle maker to further unlock value.

This is in contrast to the situation at Sony where, in 2013, the company refused Mr Loeb’s suggestion it break itself up, after he had approached with more aggressive language. (He had described himself as “perplexed” that the company was not more concerned its movie studio had “just released 2013’s versions of [box-office flops] Waterworld and Ishtar back-to-back”.)

“You do need to foster cultural awareness into your campaign because you want support from local investors as well as the international ones,” says Bruce Goldfarb, founder of Okapi Partners, an adviser to activists.

Read the entire story via The Financial Times