Impact Of Activist Investors On Business From Bill Ackman
Activist investors are simply agents of change according to Bill Ackman, hedge fund of Pershing Square. Unlike in the past, when institutional investors sought to buy controlling stakes in companies, the strategy of activist investing has changed, Ackman said. Pershing Square emerged as the top performing hedge fund in the world in 2014, with 40% return in the year.
Face of activism
Ackman has been cited as the face of activist investing, and he manages nearly $18 billion. Some of the companies in which Ackman’s hedge fund has or has taken an activist stake in the past have included JC Penney, Air Product and Chemicals Inc, Target and Burger King. Ackman’s efforts in Target and JC Penney didn’t work out as well as Burger King and Air Product and Chemicals.
Activist investors are now seeking longer term interest in the companies they invest in rather than just quick gains.
Investors were seeking to control companies through the purchase of a majority stake. However, Ackman said today the strategy of activist investors is about imposing their strategies on the companies they invest in. Activist investors usually don’t own more than 10% of a company.
According to Ackman, activist investors cannot force a change in a company because they can’t win without the support of other shareholders. Usually, activists provide options for the managers and shareholders about what needs to be done in a company, which is why Ackman says they are only thought leaders.
One of the worst investment for Ackman’s Pershing Square was retailer JC Penney. The retailer attempted a status upgrade under former CEO, Ron Johnson, but failed.
JC Penney lost $59 million, representing $0.19 a share in the fourth quarter of 2014. That compared with a profit of $0.11 a share in the same period a year earlier.
JC Penney wasn’t Ackman’s only retail failure as his stake in Target ended up going equally as poor. In 2009 Ackman launched a proxy battle but shareholders sided with management and Ackman sold out. Shares traded above $70 when Ackman first reported his stake, and closed around $50 when he exited.
One of the notable strategies of Ackman is that he likes working with old CEOs. According to the activist, one of the reasons for that is that older CEOs usually have incredible experience in what they do.
Ackman has great respect for Warren Buffett of Berkshire Hathaway, who he says was once an activist just like him.
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