Analysis | Let’s hope Bill Ackman doesn’t mellow too much

Bill Akman, CEO of Pershing Square Capital Management LP, speaks during a televised interview with Bloomberg on Wednesday, November 1, 2017 in New York, USA. Photographer: Christopher Gooden / Bloomberg

Heads with negative results may fall asleep a little easier. Bill Akman, a leading investor in the world, rules out future activist campaigns in favor of a lower approach to influence portfolio companies. This is a commendable investment position. But efficient capital markets still need a weird excitement.

Akman’s reputation has been largely driven by a small number of high-profile corporate conflicts, most notably its brief attack on the food and supplement business, Herbalife Nutrition Ltd. This overshadows the fact that its car, Pershing Square Holdings Ltd, mainly takes large holdings in companies and these positions haven’t met much resistance lately.

Last week, Akman told investors he would refuse to stay away from activists, which would mean selling borrowed stock to target and talk business. The thought of him was more of a nuance than a shareholder intervention. Pershing Square described its “intention” to keep all interactions with companies “intimate, constructive and productive” as a “quiet approach”.

Intentions are not promises; Quieter doesn’t mean quieter. Likewise, Akman’s default style will be essentially active and non-activist: public embarrassment and personal harassment from superiors rather than threatening shareholder polls to make changes.

It can formulate policies as needed. Short campaigns are comprehensive and linked to other strategies. As one investor said, you are a supportive and constructive force, you cannot demonize one company you are inferior to and then the other. You literally get the typewriter – as Akman points out, their campaign inspired the film and the book.

And as a shareholder or short seller, public wars are over and defended. To be valuable, it must be the other way around. The downside to a reputation for failure is significant.

Furthermore, exciting shareholder activism only works under certain circumstances, and opportunities can diminish. There should be a clear goal that can be achieved quickly. Traditionally, this has involved either optimizing a company’s capital structure, often borrowing more, or implementing a company to remove a valuation discount over the sum of its founding subsidiaries. Akman successfully called burger supplier Wendy’s Co. to start the Tim Hortons coffee and donut store chain.

The two most successful campaigns in recent history have been the resistance to the competition for the rights of the shopping centers over the jumbo rights of Unibail-Rodamco-Westfield and the dismissal of the managing director of the yoghurt maker Danone SA. The carrying out of such a coup in France, one of the most difficult markets for activists, was an important milestone.

But these gains seem abnormal. The low take-up of short-term activism is likely to be halted. Where the chances of leaving are high, even the largest companies will continue to do so voluntarily (think General Electric Co. and Johnson & Johnson). Witness Elliott Management Corp. campaign against renewable energy extraction at SSE Plc).

More difficult situations remain that have no obvious quick fixes. Examples would be aerospace firm Rolls-Royce Holdings Plc, which attracted California-based ValueAct Capital in 2015, and Vodafone Group Plc, a telecommunications firm that more recently targeted Cevian Capital AB.

For failed activists like Akman, the question is what separates their approach from the traditional and long-standing approach reserved for investors. The answer should be that they can improve the company’s operations by providing a helpline in the boardroom. An ideal goal would be one where problems generate a discount forecast and the investor has more experience than other advisors. In addition, the board of directors should consider the investor as a supporter with the credibility built up as a result of the previous business commitment. Choosing these areas is not easy.

Constructive dialogue between investors and portfolio companies should obviously be the norm, and the end customers of investment firms are often upset when their money is used in a hostile way. But noisy problems have their place. From time to time, we need activists to lead by example for a poorly functioning company. The danger of puppets relieves the rulers. If Akman and other veterans are now less willing to embarrass minors, hopefully the next generation of investment managers will hire activists who want to make a mark.

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Source: Washington Post

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