Shareholder activism vs. Insiders
Last week, Yahoo CEO Scott Thompson's inaccurate academic credential triggered a hedge fund shareholder activist to ouster the troubled CEO. Activist hedge fund manager Daniel Loeb demanded that the board fire Thompson by noon EDT Monday or face
possible legal action. Even though it is assumed the board won't lose Thompson at this sensitive timing when several deal talks are ongoing, the timing the activist picked is very suspicious. When the story broke, Yahoo is negotiating with Alibaba to sell its stakes back to Alibaba. Yahoo is also assume under talks with Microsoft, Alibaba, and others to sell itself. Loeb's motivation is get a few board seats, including himself, so that the hedge fund can affect these deals. The 6% Loeb controls may not aligned with the other 94% shareholders.
Stories like this doesn't always win other shareholders' support.But there are cases such shareholder activists win popularity. For example, Citi bank cleverly scheduled their meetings away from the clamouring mobs of Wall Street to Dallas and declined to provide a webcast. But its efforts could not muffle the bang made by a non-binding shareholder vote against a ludicrous compensation scheme for Vikram Pandit, its chief executive. In addition to Citi, according to The Economist, there are many more of these dramas to come in the months ahead. UBS, a perennially underperforming Swiss bank, was expected to face shareholder anger over pay at its annual meeting on May 3rd. Capital One will have its annual meeting on May 8th, and a “no” vote is recommended by Glass Lewis, an adviser to institutional investors.
In both cases, majority investors would stand in-between the activists and the company insiders. Besides hitting headlines, investors would need to decide if they want to be involved in these companies and proxy fights. In some extreme cases, investors should not be investing in these companies at all in the very beginning.
It was reported on WSJ that an investor put $190K into a "value" stock called Cadus Corp, it is still a listed company. Cadus, with a market value of only $19 million, has no employees, no operations, and just $100,000 in annual revenue from biotechnology discoveries that it sold a decade ago. Yet the company is sitting on $24 million in cash, plus more than $28 million in tax benefits that could be used to shelter future earnings. The reason Cadus attracts investors might also because of shareholder activist Carl Icahn. Investors would hope Icahn would unlock deposit cash to have higher return. But Icahn didn't think there was such an opportunity. The proxy fight went to nowhere.
It is somewhat ridiculous to invest a company without a market just because of someone sits on its board. This is certainly an extreme case. But such examples may happen again on some of us.
Stories like this doesn't always win other shareholders' support.But there are cases such shareholder activists win popularity. For example, Citi bank cleverly scheduled their meetings away from the clamouring mobs of Wall Street to Dallas and declined to provide a webcast. But its efforts could not muffle the bang made by a non-binding shareholder vote against a ludicrous compensation scheme for Vikram Pandit, its chief executive. In addition to Citi, according to The Economist, there are many more of these dramas to come in the months ahead. UBS, a perennially underperforming Swiss bank, was expected to face shareholder anger over pay at its annual meeting on May 3rd. Capital One will have its annual meeting on May 8th, and a “no” vote is recommended by Glass Lewis, an adviser to institutional investors.
In both cases, majority investors would stand in-between the activists and the company insiders. Besides hitting headlines, investors would need to decide if they want to be involved in these companies and proxy fights. In some extreme cases, investors should not be investing in these companies at all in the very beginning.
It was reported on WSJ that an investor put $190K into a "value" stock called Cadus Corp, it is still a listed company. Cadus, with a market value of only $19 million, has no employees, no operations, and just $100,000 in annual revenue from biotechnology discoveries that it sold a decade ago. Yet the company is sitting on $24 million in cash, plus more than $28 million in tax benefits that could be used to shelter future earnings. The reason Cadus attracts investors might also because of shareholder activist Carl Icahn. Investors would hope Icahn would unlock deposit cash to have higher return. But Icahn didn't think there was such an opportunity. The proxy fight went to nowhere.
It is somewhat ridiculous to invest a company without a market just because of someone sits on its board. This is certainly an extreme case. But such examples may happen again on some of us.
posted by Intl.investment.services at
2:47 PM
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