Update: Shareholders today approved Michael Dell’s buyout plan.
Michael Dell can breathe easy — after Thursday, it’s unlikely that the barbarians will be at the gate of his namesake PC maker. Corporate raider Carl Icahn, who’s been agitating for months to do a buyout of the struggling computer company, gave up his campaign earlier this week after a number of board vote postponements and a change in voting rules made it likely that Dell’s own bid to take the company private would be approved. Icahn, no shrinking violet, has of course had plenty to say about it all. In a letter to shareholders, he asked, “What’s the difference between Dell and a dictatorship? The answer: Most functioning dictatorships only need to postpone the vote once to win.”
The Dell-Icahn battle is only one of a number of high-profile fights that have taken place over the past year or so between blue-chip corporations and the barbarians, who’ve somehow managed to be rebranded as “activist investors.” Icahn has also been busy tweeting his requests that Apple’s Tim Cook pay out bigger dividends (conveniently boosting the share price of the company that he owns a large chunk of), something that has no doubt pleased fellow activist David Einhorn of Greenlight Capital, who pushed for the same thing earlier this year. Then there’s hedge-funder Daniel Loeb’s unsuccessful push to get Sony to spin off its entertainment arm and Bill Ackman’s ill-fated attempt to revamp J.C. Penney.
I could go on, but you get the idea — as I wrote in a column earlier this year, for the first time since the 1980s, the barbarians are back en masse, driven by greed, animal spirits and in some cases, real concerns about corporate governance. Most often, they want cash; after years of post-financial-crisis deleveraging, American firms are hording record amounts of money, and activists want them to part with their treasure — hence the crowding around a firm like Apple, which has become notorious for parking lots of money, unused, in overseas bank accounts. Icahn isn’t the only one who thinks they should give some of it back. More tactful people agree too — Mary Carney, the new governor of the Bank of England, has said that firms are sitting on too much “dead money” and should put it to use, or pay out to investors. But in other cases, activists are looking to revamp beleaguered companies, like J.C. Penney, or HP, which has been the target of activist Ralph Whitworth, who recently took a board seat with the support of the giant institutional investor CalPERS.
Which brings up the fact that not all activists are created equal. Some of the quieter ones, like Whitworth, are also more long-term, looking less for quarterly payouts than for a true strategic revamp of companies that have lost their way. A recent Harvard Law School study by academic Lucian Bubchuk found that activists’ barbaric reputations may well be undeserved — his research, looking at more than 2,000 activist interventions between 1994 and 2007, found that three years after being targeted by an activist firm, most companies saw a share-price increase. Of course, as the famous corporate defender Martin Lipton countered on the Conference Board’s blog site, 47% of the firms targeted didn’t exist after three years. (See the back-and-forth here.) Hate it when that happens.
The bottom line is that we’ll be seeing a lot more activism in the coming months, as a number of converging trends fuel the dealmaking — looser SEC rules that make it easier (and cheaper) to take over firms, as well as shifts in corporate governance that favor activists (like the elimination of staggered boards), the ability of social media and technology to speed and enhance proxy campaigns, plus the general sense that cash-rich corporate America is ripe for the picking. Ready the bonfires.