This year, deep-pocketed investors have used their muscle like never before to force changes at some of America’s biggest and best-known companies.
Behemoths such as Time Warner, McDonald’s and General Motors are just a few of the brand names that have been targeted by well-heeled corporate agitators. Their goal is to goose the stock price by pushing for board seats, management overhauls and strategy changes.
“Activists are increasingly going after larger targets, and next year we are likely to see even more agitating from hedge funds and others,” said Robert Kindler, global head of mergers and acquisitions at J.P. Morgan.
Legendary corporate mavericks such as Carl Icahn and Kirk Kerkorian are coming back in a big way. Icahn is pushing Time Warner to break itself up and has hired investment bank Lazard to help, and Kerkorian has bought a huge chunk of GM stock in the hopes of getting a seat on the board.
Indeed, shareholder proposals have been on the upswing since the heyday of corporate raiders in the late 1980s, according to corporate governance firm Georgeson Shareholder. Last year there were 414 nonbinding shareholder proposals, up from 111 in 1996.
This year also marked the emergence of hedge funds as “a force to be reckoned” with in election contests and mergers that require shareholder approval, the firm said in its year-end report.
Earlier this year, hedge fund Pershing Square Capital Management, run by Bill Ackman, forced fast-food chain Wendy’s International to sell real estate and spin off its Tim Hortons doughnut chain.
Now, Ackman has set his sights on McDonald’s – he wants the burger chain to spin off some of its less-successful stores and focus on real estate.
And Wendy’s still has shareholders beating down its doors.
Nelson Peltz and his partners at Trian Fund Management recently bought a 5.5 percent stake in the burger joint and are badgering it to sell off more assets.
Earlier this month, Washington Redskins’ owner Dan Snyder succeeded in ousting the head of troubled theme park operator Six Flags after a long, bitter battle with the company. Snyder used savvy marketing tactics to convince shareholders that Six Flags’ top brass was running the company into the ground.
The rise in shareholder activism comes as hedge funds, with more than $1 trillion in capital, look for new ways to boost returns.
Also fueling the activism is roaring anger at the way that many corporate chieftains at the nation’s biggest companies are managing their businesses, especially after the scandals at Enron and Worldcom, according to analysts.
“We are holding management’s feet to the fire and telling them they can’t get away with the same things they used to,” said one activist hedge fund manager.
But being well-financed and tilting at profits doesn’t guarantee success.
Kerkorian has failed to get a seat on GM’s board, and he recently sold a slice of his shares for a $500 million loss.
Icahn successfully persuaded Time Warner to raise its dividend, but hasn’t yet persuaded the company to split itself into different companies. This year, Icahn also went after Kerr-McGee Corp. and Blockbuster Inc.
He won a seat on Blockbuster’s board, but the video chain’s stock is now trading around $4, less than half of what it was when Icahn began his fight.
Taking them to task
Here are some top activist shareholders and how they’re holding corporate feet to the fire.
Activist
Target
Actions
Dan Snyder
Six Flags
Ousted CEO Kieran Burke; installed self as chairman and right-hand man Mark Shapiro as CEO.
Kirk Kerkorian
General Motors
Still seeking GM board seat. After buying 50M shares, Kerkorian just sold 12M for a $500M loss.
Carl Icahn
Time Warner
Forced media conglomerate to issue special dividend. Now pushing to split company up.
Bill Ackman
McDonald’s
Pressured McD’s to spin off less profitable stores, but was rebuffed. Wants top tap into company’s real estate value.
Nelson Peltz
Wendy’s
Arby’s owner took a 5.5% stake in Wendy’s and is pushing for a strategy change.