Pershing Square Capital Management, L.P. announced today that it will host a public presentation on Wednesday, October 29, 2008 where it will detail a potential transaction that Pershing Square believes will build long-term value for Target Corporation and all of its stakeholders. All parties are welcome to attend the presentation, which will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit.
Pershing Square is a long-term investor in Target. Since acquiring its initial stake in April 2007, Pershing Square has beneficially acquired slightly less than 10% of the company's outstanding common stock.
Target's thoughtful and constructive approach with shareholders has been instrumental to Pershing Square's work in developing a potential transaction. Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders.
The presentation will be based solely on publicly available information, as well as assumptions, estimates and projections of Pershing Square.
Due to limited available seating, attendees are encouraged to register in advance at www.visualwebcaster.com/pstgt, but may also do so at the event beginning at 12:30 PM.
Date: Wednesday, October 29, 2008
Time: Registration: 12:30 PM Presentation: 1:30 PM
Place: The AXA Equitable Auditorium
787 Seventh Avenue (between 51st and 52nd Streets)
New York, NY 10019
A live webcast of the presentation will be available at www.visualwebcaster.com/pstgt.
A live audio broadcast of the presentation will be available by teleconference. The teleconference can be accessed in the United States by dialing 1-866-682-9100 (internationally by dialing 201-499-0417), with the participant access code of 2629412.
Written materials describing the potential transaction will be made available at www.visualwebcaster.com/pstgt following the presentation.
Tuesday, October 28, 2008
Activist Spotlight: Wynnefield Small Cap Value Fund
This post was contributed by Ted Wallace, an analyst with the proxy solicitation firm The Altman Group. We're pleased to have Ted contribute to our blog and look forward to additional posts from him in the future.
Will the current market conditions lead to an increase in hedge fund activism? Wynnefield Partners Small Cap Value LP is one firm that has recently increased its communications with management teams as a means of protecting its investments. Below are the four situations in which Wynnefield has chosen to take a pro-active stance with management in recent months. In three of these, Wynnefield converted a 13G (5% or greater, passive investment) filing to a 13D filing (5% or greater, may seek to influence management).
Four activist situations for a single fund at one time, while not unusual, is rare. Four activist situations in three months on the part of Wynnefield Partners Small Cap Value LP is unheard of.
Nobel Learning Communities, Inc. (NLCI)
Wynnefield converted its 12.5% interest from a 13G filing to a 13D in July with the intent of persuading NLCI to enact a poison pill with a 30% trigger. Since then, Wynnefield has amended this 13D in September and October with letters to the Board, urging it to consider the acquisition offer made by Knowledge Learning Corp.
NLCI has a $130.29M market cap and is 19% institutionally held. It represents 7.4% of Wynnefield’s portfolio. Wynnefield holds 12.8% of NLCI as of its October 23rd 13D/A.
NLCI Filings
Liquidmetal Technologies, Inc. (LQMT)
Wynnefield converted its 8.34% interest from a 13G filing to a 13D in August, stating that LQMT had defaulted on its Subordinated Convertible Notes by not amortizing them ab initio. Wynnefield also stated its intent to seek a more active role in the company, “in order to protect their position and the position of other shareholders and creditors.”
Since then, Wynnefield has formally rejected LQMT’s settlement terms with respect to the Notes, and in October sent a letter to the company demanding the formation of a special committee of independent board members to evaluate the capital situation of LQMT. In the letter, Wynnefield also demanded that one of its nominees be appointed to LQMT’s board.
LQMT has a $4.92M market cap and is 2% institutionally held. It represents 0.07% of Wynnefield’s portfolio. Wynnefield holds 8.34% of LQMT as of its October 10th 13D/A (this includes the Convertible Notes and Warrants).
LQMT Filings
White Electronic Designs Corp. (WEDC)
Wynnefield converted its 5.7% interest from a 13G filing to a 13D in September, when it sent a letter to WEDC’s board in support of the request of Brian Kahn(of Kahn Capital Management LLC) to be appointed to the seat left vacant by Hamid R. Shokrgozar’s recent resignation.
Since then, Wynnefield has filed three amendments to its 13D, continuing its support of Kahn’s appointment and demanding that WEDC keep its shareholders informed of the findings of the Strategic Committee. Wynnefield has also urged the company not to waste time and money in a search for a new CEO until the Strategic Committee’s recommendations have been publicly presented.
WEDC has a $83.33M market cap and is 45% institutionally held. It represents 1.88% of Wynnefield’s portfolio. Wynnefield holds 5.8% of WEDC as of its October 20th 13D/A.
WEDC Filings
Unigene Laboratories, Inc. (UGNE)
Wynnefield amended its January 13D filing (5.4%) in September, with a letter stating its intent “to influence the Issuer’s Board and its management to take certain actions designed to enhance shareholder value.” The letter set forth a grievance list and a demand that UGNE reduce the size of the board from 9 members to 7, including 2 of Wynnefield’s nominees.
UGNE has a $55.17M market cap and is 2% institutionally held. It represents 1.49% of Wynnefield’s portfolio. Wynnefield holds 5.4% of UGNE as of its September 4th 13D/A.
UGNE Filings
Past Activism
Wynnefield and Breeze-Eastern Corp. (BZC) settled for board seats in July 2008.
Wynnefield and Crown Crafts, Inc. (CRWS) settled for board seats in June of 2008.
After pressure from Wynnefield, H. Thomas Winn resigned from the position of Chairman of the Board of Nevada Gold & Casinos, Inc. (UWN) in June of 2007 (he did not resign from the Board itself). This was also a situation in which Wynnefield converted from a 13G to a 13D; Wynnefield still holds 13% of the company.
From the Wynnefield Website:
“Wynnefield maintains a pro-active posture with respect to its portfolio names when it believes management is not taking appropriate measures to surface shareholder value, where corporate governance issues exist, or where outside assistance can be provided to a management working to implement value creating strategies. In numerous cases, we are Schedule 13-D and Form 4 filers. Wynnefield does not generally seek out Board representation. However, one of our members will, in rare circumstances where the size of the position and potential return warrants a higher level of resource commitment, accept a board of director's seat. We are not litigious and do not accept greenmail, operating only for the entire class of holders of which we are part”
Conclusion
In a very broad sense, activist hedge funds can be placed into two categories: corporate-raider and management-friendly. The former seeks a return on the fund investment by being the catalyst for a situation that drives stock prices up (and then getting out of the stock). The latter seeks to increase the value of its investment from the inside-out – by working with management to increase the productivity of a company or get the best price for shareholders if a sale of the company is warranted. Categorizing such situations is tricky: the categories themselves are fungible and it is possible for a fund to start out as one and become the other. At bottom, these descriptions end up being more indicative of situational strategies than of the funds themselves. They are the good cop/bad cop masks the funds wear to achieve the desired reaction from management.
Which type of investor in each of the above situations is Wynnefield Partners Small Cap Value LP?
Wynnefield’s general modus operandi has been to convert its 13G filing to a 13D – to switch from a passive investor to an active one. Wynnefield’s investments in the above four companies range from 0.7% to 7.4% of its portfolio – there are 34 companies within this range that have not received this level of communication from Wynnefield. It has a total of 61 stocks in its portfolio.
Under the current market conditions, can we expect more hedge fund activism, and if so, which type of activist strategy is more likely to succeed?
In the future, I think we can expect an increase in hedge fund activism from both categories. Many, many companies reached a 52-week low in the past couple of months, and nothing justifies pointing the finger at management as well as low stock prices. I think we will see plenty of action from the corporate raider types – demanding board representation and overhaul, calling for companies to be sold, etc. I think we will also see plenty of activism from investors who see value in a company and will roll up their sleeves and get in the trenches to help management get through these tough times.
All aggregate equity interest data from FactSet or Yahoo! Finance.
This entry was posted by Ted Wallace from The Altman Group.
Will the current market conditions lead to an increase in hedge fund activism? Wynnefield Partners Small Cap Value LP is one firm that has recently increased its communications with management teams as a means of protecting its investments. Below are the four situations in which Wynnefield has chosen to take a pro-active stance with management in recent months. In three of these, Wynnefield converted a 13G (5% or greater, passive investment) filing to a 13D filing (5% or greater, may seek to influence management).
Four activist situations for a single fund at one time, while not unusual, is rare. Four activist situations in three months on the part of Wynnefield Partners Small Cap Value LP is unheard of.
Nobel Learning Communities, Inc. (NLCI)
Wynnefield converted its 12.5% interest from a 13G filing to a 13D in July with the intent of persuading NLCI to enact a poison pill with a 30% trigger. Since then, Wynnefield has amended this 13D in September and October with letters to the Board, urging it to consider the acquisition offer made by Knowledge Learning Corp.
NLCI has a $130.29M market cap and is 19% institutionally held. It represents 7.4% of Wynnefield’s portfolio. Wynnefield holds 12.8% of NLCI as of its October 23rd 13D/A.
NLCI Filings
Liquidmetal Technologies, Inc. (LQMT)
Wynnefield converted its 8.34% interest from a 13G filing to a 13D in August, stating that LQMT had defaulted on its Subordinated Convertible Notes by not amortizing them ab initio. Wynnefield also stated its intent to seek a more active role in the company, “in order to protect their position and the position of other shareholders and creditors.”
Since then, Wynnefield has formally rejected LQMT’s settlement terms with respect to the Notes, and in October sent a letter to the company demanding the formation of a special committee of independent board members to evaluate the capital situation of LQMT. In the letter, Wynnefield also demanded that one of its nominees be appointed to LQMT’s board.
LQMT has a $4.92M market cap and is 2% institutionally held. It represents 0.07% of Wynnefield’s portfolio. Wynnefield holds 8.34% of LQMT as of its October 10th 13D/A (this includes the Convertible Notes and Warrants).
LQMT Filings
White Electronic Designs Corp. (WEDC)
Wynnefield converted its 5.7% interest from a 13G filing to a 13D in September, when it sent a letter to WEDC’s board in support of the request of Brian Kahn(of Kahn Capital Management LLC) to be appointed to the seat left vacant by Hamid R. Shokrgozar’s recent resignation.
Since then, Wynnefield has filed three amendments to its 13D, continuing its support of Kahn’s appointment and demanding that WEDC keep its shareholders informed of the findings of the Strategic Committee. Wynnefield has also urged the company not to waste time and money in a search for a new CEO until the Strategic Committee’s recommendations have been publicly presented.
WEDC has a $83.33M market cap and is 45% institutionally held. It represents 1.88% of Wynnefield’s portfolio. Wynnefield holds 5.8% of WEDC as of its October 20th 13D/A.
WEDC Filings
Unigene Laboratories, Inc. (UGNE)
Wynnefield amended its January 13D filing (5.4%) in September, with a letter stating its intent “to influence the Issuer’s Board and its management to take certain actions designed to enhance shareholder value.” The letter set forth a grievance list and a demand that UGNE reduce the size of the board from 9 members to 7, including 2 of Wynnefield’s nominees.
UGNE has a $55.17M market cap and is 2% institutionally held. It represents 1.49% of Wynnefield’s portfolio. Wynnefield holds 5.4% of UGNE as of its September 4th 13D/A.
UGNE Filings
Past Activism
Wynnefield and Breeze-Eastern Corp. (BZC) settled for board seats in July 2008.
Wynnefield and Crown Crafts, Inc. (CRWS) settled for board seats in June of 2008.
After pressure from Wynnefield, H. Thomas Winn resigned from the position of Chairman of the Board of Nevada Gold & Casinos, Inc. (UWN) in June of 2007 (he did not resign from the Board itself). This was also a situation in which Wynnefield converted from a 13G to a 13D; Wynnefield still holds 13% of the company.
From the Wynnefield Website:
“Wynnefield maintains a pro-active posture with respect to its portfolio names when it believes management is not taking appropriate measures to surface shareholder value, where corporate governance issues exist, or where outside assistance can be provided to a management working to implement value creating strategies. In numerous cases, we are Schedule 13-D and Form 4 filers. Wynnefield does not generally seek out Board representation. However, one of our members will, in rare circumstances where the size of the position and potential return warrants a higher level of resource commitment, accept a board of director's seat. We are not litigious and do not accept greenmail, operating only for the entire class of holders of which we are part”
Conclusion
In a very broad sense, activist hedge funds can be placed into two categories: corporate-raider and management-friendly. The former seeks a return on the fund investment by being the catalyst for a situation that drives stock prices up (and then getting out of the stock). The latter seeks to increase the value of its investment from the inside-out – by working with management to increase the productivity of a company or get the best price for shareholders if a sale of the company is warranted. Categorizing such situations is tricky: the categories themselves are fungible and it is possible for a fund to start out as one and become the other. At bottom, these descriptions end up being more indicative of situational strategies than of the funds themselves. They are the good cop/bad cop masks the funds wear to achieve the desired reaction from management.
Which type of investor in each of the above situations is Wynnefield Partners Small Cap Value LP?
Wynnefield’s general modus operandi has been to convert its 13G filing to a 13D – to switch from a passive investor to an active one. Wynnefield’s investments in the above four companies range from 0.7% to 7.4% of its portfolio – there are 34 companies within this range that have not received this level of communication from Wynnefield. It has a total of 61 stocks in its portfolio.
Under the current market conditions, can we expect more hedge fund activism, and if so, which type of activist strategy is more likely to succeed?
In the future, I think we can expect an increase in hedge fund activism from both categories. Many, many companies reached a 52-week low in the past couple of months, and nothing justifies pointing the finger at management as well as low stock prices. I think we will see plenty of action from the corporate raider types – demanding board representation and overhaul, calling for companies to be sold, etc. I think we will also see plenty of activism from investors who see value in a company and will roll up their sleeves and get in the trenches to help management get through these tough times.
All aggregate equity interest data from FactSet or Yahoo! Finance.
This entry was posted by Ted Wallace from The Altman Group.
Wednesday, October 22, 2008
The Activist Entrepreneur: Varieties of Nationalization
This is part two in a series of posts chronicling the activist investing efforts of Hank Greenberg at AIG. This blog entry is written by Chris Faille, a writer (formerly with Reuters’ HedgeWorld) and regular contributing expert to our blog. Chris’ blog on the struggles for corporate control can be found at: http://www.proxypartisans.blogspot.com/
The Federal Reserve last month offered AIG a loan of $85 billion. As I noted in the first part of this series, there were significant strings attached. AIG agreed to pay 8.5% over three-month LIBOR, an initial gross commitment fee of 2% of the total loan facility, and an 8.5% fee on undrawn amounts. Also – the kicker – the Fed received a 79.9% stake in the insurer.
The same authorities raised the stakes on October 8, offering a separate line of credit of up to $37.8 billion. This gave AIG a cushion of close to $123 billion. In the punchline of an old joke, “…pretty soon you’re talking about real money.”
Yet the insurer is working through that cash at a steady clip, meeting collateral calls and unwinding its positions on derivatives tied to bad mortgage debts. Even more worrisome, it hasn’t yet managed to arrange any of the asset sales on which its survival certainly depends.
Meanwhile, it has provided the usual diverting let-them-eat-cake story: that now-infamous $440,000 post-rescue weekend at a California spa for (according to the initial reports) certain of its executives. AIG denied one aspect of this report: it has said that the event was for independent agents that bring in a lot of business, not for headquarters execs. Nonetheless, the late night comics had their fodder.
In the midst of the mess, Maurice (“Hank”) Greenberg has put forward his own plan to save the giant insurance company he led for more than four decades. He calls the Fed loan, its terms, and the anticipated asset sales all a “lose/lose plan.” He proposes that the deal be re-negotiated, and that the Fed receive instead non-voting preferred stock with a dividend of about 5.5% and a 10 year right of redemption. (link to Greenberg's letter)
Nationalization by Foreigners
Nationalization looks rather different when it comes from your own government. The partial takeover of AIG that we have seen over the last month reminds me, though, of some observations in a recent book about AIG, and Greenberg’s large place in its history. The book, written by Ron Shelp, a former AIG troubleshooter, with assistance from journalist Al Ehrbar, is fittingly titled Fallen Giant (2006).
It devotes considerable attention to the issue of nationalization, attention that carries an ironic charge now.
When other U.S. companies suffered from nationalization policies in non-U.S. countries, they’ve generally lost the value of the tangible assets in the companies concerned – in Cuba or India, to take just two instances. A U.S. company that lost the value of a nationalized steel plant or automobile assembly line in such a place was assured of the sympathy, and perhaps of the effective assistance, of the U.S. State Department. AIG executives have often had reason to be envious of that.
AIG’s business (as Cornelius Starr himself put it after Castro took over in Cuba) isn’t anything as tangible as a steel plant. It’s “a guarantee, a piece of paper.” Valuing that piece of paper, and determining the compensation appropriate after nationalization, is a tricky matter.
It wasn’t until the 1970s that a considerable lobbying push developed to have the government recognize services, including insurance products, as items of trade on a par with tangible goods. When such a movement did develop, AIG played a big part in it, and Hank Greenberg chaired the trade association that resulted, the Coalition of Service Industries.
This push for parity of treatment for intangibles got underway too late, though, to have an impact on the wording of The Trade Act of 1974. One crucial provision of that law, section 301, gave the executive branch the authority to retaliate against a foreign country that discriminates against U.S. commerce. The discrimination, of course, need not go as far as Castroite nationalization to invoke 301, although that’s a paradigm case.
By 1984 the CSI had made its point, and the law was amended that year to include service industries within the scope of 301.
Shelp and Ehrbar write, “AIG’s worldwide reputation had been substantially enhanced by the very visible leadership it had given to advancing this issue.”
Nationalization at Home
Greenberg, in recent testimony prepared for the House Committee on Oversight, also spoke of this issue. “During my tenure there, AIG opened markets for U.S. businesses all over the world, and contributed significantly to U.S. gross domestic product. For more than three decades, it stood at the vanguard of the movement to liberalize the global trade in services.”
Now that the threat of nationalization has arisen from within the U.S. political system, with some assistance from the state of New York and more assistance from the political tone-deafness of AIG’s leadership, neither the State Department nor the trade officials in the Commerce Department will do it any good.
Furthermore, and unfortunately, Greenberg’s alternative plan is a non-starter. The Fed isn’t obliged to respond to an SEC filing, and of course aren’t likely to “surrender their bond” (if the Shakespearean phrase be allowed) in return for anything less than they were able to exact at the moment of crisis.
But Greenberg has left us that testimony to the House Oversight Committee, and in that he has given us the best account yet of what happened, of how “the risk controls my team and I put in place were weakened or eliminated after my retirement.”
That subject will occupy us in the next installment of this series.
This entry was posted by Chris Faille who is a journalist covering activist investing issues and a regular contributor to our blog.
The Federal Reserve last month offered AIG a loan of $85 billion. As I noted in the first part of this series, there were significant strings attached. AIG agreed to pay 8.5% over three-month LIBOR, an initial gross commitment fee of 2% of the total loan facility, and an 8.5% fee on undrawn amounts. Also – the kicker – the Fed received a 79.9% stake in the insurer.
The same authorities raised the stakes on October 8, offering a separate line of credit of up to $37.8 billion. This gave AIG a cushion of close to $123 billion. In the punchline of an old joke, “…pretty soon you’re talking about real money.”
Yet the insurer is working through that cash at a steady clip, meeting collateral calls and unwinding its positions on derivatives tied to bad mortgage debts. Even more worrisome, it hasn’t yet managed to arrange any of the asset sales on which its survival certainly depends.
Meanwhile, it has provided the usual diverting let-them-eat-cake story: that now-infamous $440,000 post-rescue weekend at a California spa for (according to the initial reports) certain of its executives. AIG denied one aspect of this report: it has said that the event was for independent agents that bring in a lot of business, not for headquarters execs. Nonetheless, the late night comics had their fodder.
In the midst of the mess, Maurice (“Hank”) Greenberg has put forward his own plan to save the giant insurance company he led for more than four decades. He calls the Fed loan, its terms, and the anticipated asset sales all a “lose/lose plan.” He proposes that the deal be re-negotiated, and that the Fed receive instead non-voting preferred stock with a dividend of about 5.5% and a 10 year right of redemption. (link to Greenberg's letter)
Nationalization by Foreigners
Nationalization looks rather different when it comes from your own government. The partial takeover of AIG that we have seen over the last month reminds me, though, of some observations in a recent book about AIG, and Greenberg’s large place in its history. The book, written by Ron Shelp, a former AIG troubleshooter, with assistance from journalist Al Ehrbar, is fittingly titled Fallen Giant (2006).
It devotes considerable attention to the issue of nationalization, attention that carries an ironic charge now.
When other U.S. companies suffered from nationalization policies in non-U.S. countries, they’ve generally lost the value of the tangible assets in the companies concerned – in Cuba or India, to take just two instances. A U.S. company that lost the value of a nationalized steel plant or automobile assembly line in such a place was assured of the sympathy, and perhaps of the effective assistance, of the U.S. State Department. AIG executives have often had reason to be envious of that.
AIG’s business (as Cornelius Starr himself put it after Castro took over in Cuba) isn’t anything as tangible as a steel plant. It’s “a guarantee, a piece of paper.” Valuing that piece of paper, and determining the compensation appropriate after nationalization, is a tricky matter.
It wasn’t until the 1970s that a considerable lobbying push developed to have the government recognize services, including insurance products, as items of trade on a par with tangible goods. When such a movement did develop, AIG played a big part in it, and Hank Greenberg chaired the trade association that resulted, the Coalition of Service Industries.
This push for parity of treatment for intangibles got underway too late, though, to have an impact on the wording of The Trade Act of 1974. One crucial provision of that law, section 301, gave the executive branch the authority to retaliate against a foreign country that discriminates against U.S. commerce. The discrimination, of course, need not go as far as Castroite nationalization to invoke 301, although that’s a paradigm case.
By 1984 the CSI had made its point, and the law was amended that year to include service industries within the scope of 301.
Shelp and Ehrbar write, “AIG’s worldwide reputation had been substantially enhanced by the very visible leadership it had given to advancing this issue.”
Nationalization at Home
Greenberg, in recent testimony prepared for the House Committee on Oversight, also spoke of this issue. “During my tenure there, AIG opened markets for U.S. businesses all over the world, and contributed significantly to U.S. gross domestic product. For more than three decades, it stood at the vanguard of the movement to liberalize the global trade in services.”
Now that the threat of nationalization has arisen from within the U.S. political system, with some assistance from the state of New York and more assistance from the political tone-deafness of AIG’s leadership, neither the State Department nor the trade officials in the Commerce Department will do it any good.
Furthermore, and unfortunately, Greenberg’s alternative plan is a non-starter. The Fed isn’t obliged to respond to an SEC filing, and of course aren’t likely to “surrender their bond” (if the Shakespearean phrase be allowed) in return for anything less than they were able to exact at the moment of crisis.
But Greenberg has left us that testimony to the House Oversight Committee, and in that he has given us the best account yet of what happened, of how “the risk controls my team and I put in place were weakened or eliminated after my retirement.”
That subject will occupy us in the next installment of this series.
This entry was posted by Chris Faille who is a journalist covering activist investing issues and a regular contributor to our blog.
Tuesday, October 7, 2008
September's Activist Investments - 57 in total.
Below is a summary list of investments made by shareholder activists during the month of September. This information was extracted from Hedge Fund Solutions' Catalyst Equity Research Report(TM) - a free in-depth weekly research report on activist investments.To receive the FREE report delivered via email weekly, subscribe at http://www.hedgerelations.com/research.html
For additional information on any specific transaction below, contact Damien Park at 215.325.0514 or dpark@hedgerelations.com
| Ticker | Company | Activist Investor |
| ALDN | Aladdin Knowledge Systems | Vector Capital |
| ALEX | Alexander & Baldwin | Breeden Capital Management |
| ALO | Alpharma Inc | Gamco |
| AMLN | Amylin Pharmaceutical Inc. | Carl Icahn |
| ANPI | Angiotech Pharmaceuticals | West Coast Asset Management |
| ARBX | Arbinet-TheExchange | Karen Singer |
| AVPI | AVP Inc. | RJSM Partners |
| BAMM | Books-A-Million, Inc | Discovery Group |
| BBAL.OB | New York Health Care | David Polonitza |
| BKFG.PK | BKF Capital | Catalyst Fund |
| CPN | Calpine Corp | Luminus Management |
| CSK | Chesapeake Corp | Edelmann GmbH & Co |
| CSX | CSX Corp | The Children's Investment Fund |
| CVG | Convergys Corp | Jana Partners |
| DDS | Dillards Inc | Clinton Group/Barington Capital |
| DEK | Dekania Corp | Bulldog Investors |
| DIN | DineEquity, Inc | MSD Capital |
| DVD | Dover Motorsports | Mario Cibelli |
| EII | Energy Infrastructure Acquisition Corp | Bulldog Investors |
| ESCA | Escalade Inc | VN Capital Fund |
| GLA | Clark Holdings | Cherokee Capital Management |
| GSIT | GSI Technology | Riley Investmetn Management |
| HDLM | Handleman Co | S. Muoio & Co |
| HI | Hillenbrand Inc | Breeden Capital |
| IPAS | iPass, Inc | Foxhill Capital |
| IRF | International Rectifier | Vishay Intertechnology |
| ISH | International Shipholding Corp | Liberty Shipping Group |
| ISV | Insite Vision Inc | Pinto Technology Ventures |
| LDG | Longs Drug Stores Corp | CtW Investment Group |
| LDG | Longs Drug Stores Corp | Pershing Square/Advisory Research |
| LENS | Concord Camera | Everest Special Situations Fund |
| LQMT.OB | Liquidmetal Technologies, Inc | Wynnefield Capital |
| MPET | Magellan Petroleum Corp | ANS Investments |
| MWRK | Mothers Work | Mill Road Capital |
| MZF | MBIA Capital | Western Investment |
| NAPS | Napster | Perry Rod |
| NCOC | National Coal Corp | Centaurus Energy Master Fund |
| NLCI | Nobel Learning Communities | Blesbok Inc |
| NTMD | Nitromed Inc | Deerfield Capital |
| NTN | NTN Buzztime | Trinad Capital; Media General |
| OEH | Oriental Express Hotels | DE Shaw; SAC Capital |
| PCYC | Pharmacyclics Inc | Robert Duggan |
| REMC.OB | Remec, Inc. | Ancora Capital |
| SLE | Sara Lee Corp | Value Act Partners |
| SPA | Sparton Corp | Lawndale Capital |
| SUTM.OB | Sun-Times Media Group | Davidson Kepner Partners |
| TAC | TransAlta | The Children's Investment Fund |
| TBAC | Tandy Brands Accessories | NSL Capital |
| TIER | Tier Technologies | Discovery Equity |
| TMTA | Transmeta Corp | Riley Investment Management |
| TMWD | Tumbleweed Communications Corp | Empire Capital |
| TXI | Texas Industries | NNS Investments |
| UAHC | United American Healthcare Corp. | Strategic Turnaround Equity Partners |
| UNGE.OB | Unigene Laboratories Inc | Wynnefield Partners |
| UTEK | Ultratech Inc | Temujin Fund Management |
| WEDC | White Electronic Designs Corp | Wynnefield Partners |
| WMPN.OB | William Penn Bancorp | Joseph Stilwell |
Posted By Damien Park, Hedge Fund Solutions
Monday, October 6, 2008
Carl Icahn will launch a lobbying group to promote shareholder friendly legislation
Carl Icahn will launch a lobbying group called United Shareholders with the intention to pass more shareholder-friendly legislation.
Icahn's office told me they intend to officially announce the effort later this week. We'll be sure to post the details when we get them.
In the meantime... a report from MarketWatch suggests that the purpose of the lobbying group is to promote laws that will block large compensation packages for executives at underperforming companies. In addition, the group will press for legislation that will make poison pills and staggered boards illegal.
Posted by Damien Park from Hedge Fund Solutions
Icahn's office told me they intend to officially announce the effort later this week. We'll be sure to post the details when we get them.
In the meantime... a report from MarketWatch suggests that the purpose of the lobbying group is to promote laws that will block large compensation packages for executives at underperforming companies. In addition, the group will press for legislation that will make poison pills and staggered boards illegal.
Posted by Damien Park from Hedge Fund Solutions
Sunday, October 5, 2008
The Activist Entrepreneur: Greenberg and the AIG Magnet
This is part one in a series of posts that will continue to follow the activist investing efforts of Hank Greenberg at AIG. This blog is written by Chris Faille, a writer (formerly with Reuters’ HedgeWorld) and regular contributing expert to our blog. Chris’ blog on the struggles for corporate control can be viewed at http://www.proxypartisans.blogspot.com/
Recent news about AIG and about its former chairman, Maurice (Hank) Greenberg, makes an important point about activist investing. Indeed, about entrepreneurship. We might get at this point through an analogy from physics: how is an activist-entrepreneur like, and unlike, an iron filing? On the one hand, an activist moves toward a profit making opportunity as iron filings move toward a magnet. But, on the other, if you put a playing card between the filings and the magnet, the filings will press indefinitely against that card’s surface, going no further. With an entrepreneur, the pursuit can get ingenious and convoluted.
Greenberg, who was at the center of AIG’s growth over a period of decades, has asked for the chance to buy some of its assets. He was unceremoniously ejected from the company in 2005, and has since sought – against obstacles a good deal hardier than playing cards – to find his way back there.
Even if a stone wall is imposed by the fiat of New York State or the United States between the activist-entrepreneur and the opportunity, the former will not remain idiotically pressing his face against the stone, crying “foul”. If he is both agile and determined, he’ll find some more circuitous route, up over the wall or around one of its sides.
The latest news is that Greenberg – who couldn’t be reached for comment on this entry – has objected, in a letter to AIG chief executive Edward Libby, that the process of selling assets has been taking place “without transparency and without providing the opportunity for the participation of alternative purchasers.”
The Wall Street Journal broke this story Wednesday morning, and an AIG spokesman confirmed in a telephone conversation that the company has received the letter as described in the Journal’s report.
The spokesman, Joe Norton, said that he couldn’t comment on the specific contents of the letter, but that the company “welcomes any reasonable expressions of interest in the businesses we plan to sell.”
Some History
AIG is a powerful source of entrepreneurial magnetism for Greenberg. It was the company’s founder, Cornelius Vander Starr, who put Greenberg in charge of its North America holdings in 1962, and named the younger man as his successor six years later. It was only a short time thereafter that the company went public.
Greenberg was still at the top of the corporate hierarchy there in 1999, when AIG put out a press release that described consolidated assets as $259 billion, and shareholders’ equity as $32.3 billion.
Some critics maintain that at or around this time, AIG was paying “contingent commissions,” an illegal way of persuading independent brokers to steer business their way. The critics, including the usual class-action plaintiffs’ lawyers, maintain that the company’s capitalization was inflated because it hid this practice, and consequently its legal liability, from its investors.
The Stone Wall I
In October 2004, the then attorney general for the state of New York, Eliot Spitzer, filed a lawsuit against Marsh & McLennan Companies, a giant insurance brokerage firm, in connection with their solicitation of just such commissions. Maurice Greenberg’s son, Jeffrey Greenberg, was the chairman and CEO of Marsh Mac at the time, a position whence the younger Greenberg resigned soon after the charges were made public.
The elder Greenberg stayed on longer, protesting that the charges were unfounded. The board of directors of AIG pushed him out in March 2005. That May, Spitzer dropped the other shoe, bringing charges against AIG, Greenberg, and the former AIG chief financial officer, Howard I. Smith, alleging fraud and violations of insurance and securities laws.
The AG office hasn’t been able to make any of these charges stick. Spitzer himself dropped some of the charges while he was still AG.
Mr. Greenberg was (understandably) unhappy about his directors’ rather spineless appeasement of Spitzer, and he continued through various entities to control a large chunk of the equity of AIG. In recent months, he had been acting like a man in search of vindication and return.
In November 2005, Greenberg filed a notice with the SEC that he and entities he controlled had decided “there are opportunities to significantly improve the Issuer's [AIG's] performance and strategic direction, as well as the value of their investment." The filing committed Greenberg to nothing, not even to "holding discussions" with other shareholders. Why does one file a document with the SEC that says in effect, “I'm not all that happy with the return I'm getting and I might talk to some others to see if they feel the same way”? People who hold large chunks of stock in a publicly owned company are required to keep the public, and so the management of that company, apprised of their intentions, so there are no takeovers-by-ambush. Despite all the cautious lawyerly wording, then, it appeared to many that Greenberg was setting the stage and some sort of struggle for control was in the offing.
The Stone Wall II
The following month, the Insurance Department of the state of New York stepped up to the plate. New York law says that if an individual stockholder, or a group acting together, acquires more than 10% of the equity of a company selling insurance within that state, the acquirer becomes a "controlling entity" – which means such an acquisition requires state permission.
In December, the department calculated that Greenberg and various affiliated entities constituted a “group” in the relevant sense, and demanded that he “cease and desist from engaging in any further activities aimed at exercising a controlling influence over AIG.”
An attorney for Greenberg, Marcia Alazraki, replied at once, saying that the various entities involved weren't a group in the relevant sense, and asked for a meeting with NY officials to discuss the issue. Ms Alazraki knows the issue well. She was deputy superintendent at the NY Dept. of Insurance herself in the early 1980s, and assistant counsel to the Governor of the state, Hugh Carey, before that (1979-81).
Stone Wall III
But Greenberg persisted, in the belief that he could rescue AIG from what ailed it. In a filing with the SEC on September 16, he said that he had retained an advisory services firm in connection with his investment in AIG and that he was pursuing a variety of options.
Finally, though, the company interposed between itself and its former boss the largest stone wall of all, the United States. It signed a definitive agreement to set up a $85 billion credit line with the Federal Reserve Bank of New York, and to surrender 80% of its equity to the federal government. (As of September 30th AIG has drawn down $61 Billion on the credit facility)
Obviously this implied a devastating degree of value dilution for the shareholders, including Greenberg, who owned roughly 11% of the stock at that point. When he left the company, he held $20 billion worth of its stock. Those holdings are now worth about $800 million.
A less persistent ‘iron filing’ might have taken his losses and drifted away at this point. By contrast, Mr. Greenberg’s interest in those asset sales has an inspirational quality to it, as befits his “greatest generation” bona fides.
This entry was posted by Chris Faille who is a journalist covering activist investing issues and a regular contributor to our blog.
Recent news about AIG and about its former chairman, Maurice (Hank) Greenberg, makes an important point about activist investing. Indeed, about entrepreneurship. We might get at this point through an analogy from physics: how is an activist-entrepreneur like, and unlike, an iron filing? On the one hand, an activist moves toward a profit making opportunity as iron filings move toward a magnet. But, on the other, if you put a playing card between the filings and the magnet, the filings will press indefinitely against that card’s surface, going no further. With an entrepreneur, the pursuit can get ingenious and convoluted.
Greenberg, who was at the center of AIG’s growth over a period of decades, has asked for the chance to buy some of its assets. He was unceremoniously ejected from the company in 2005, and has since sought – against obstacles a good deal hardier than playing cards – to find his way back there.
Even if a stone wall is imposed by the fiat of New York State or the United States between the activist-entrepreneur and the opportunity, the former will not remain idiotically pressing his face against the stone, crying “foul”. If he is both agile and determined, he’ll find some more circuitous route, up over the wall or around one of its sides.
The latest news is that Greenberg – who couldn’t be reached for comment on this entry – has objected, in a letter to AIG chief executive Edward Libby, that the process of selling assets has been taking place “without transparency and without providing the opportunity for the participation of alternative purchasers.”
The Wall Street Journal broke this story Wednesday morning, and an AIG spokesman confirmed in a telephone conversation that the company has received the letter as described in the Journal’s report.
The spokesman, Joe Norton, said that he couldn’t comment on the specific contents of the letter, but that the company “welcomes any reasonable expressions of interest in the businesses we plan to sell.”
Some History
AIG is a powerful source of entrepreneurial magnetism for Greenberg. It was the company’s founder, Cornelius Vander Starr, who put Greenberg in charge of its North America holdings in 1962, and named the younger man as his successor six years later. It was only a short time thereafter that the company went public.
Greenberg was still at the top of the corporate hierarchy there in 1999, when AIG put out a press release that described consolidated assets as $259 billion, and shareholders’ equity as $32.3 billion.
Some critics maintain that at or around this time, AIG was paying “contingent commissions,” an illegal way of persuading independent brokers to steer business their way. The critics, including the usual class-action plaintiffs’ lawyers, maintain that the company’s capitalization was inflated because it hid this practice, and consequently its legal liability, from its investors.
The Stone Wall I
In October 2004, the then attorney general for the state of New York, Eliot Spitzer, filed a lawsuit against Marsh & McLennan Companies, a giant insurance brokerage firm, in connection with their solicitation of just such commissions. Maurice Greenberg’s son, Jeffrey Greenberg, was the chairman and CEO of Marsh Mac at the time, a position whence the younger Greenberg resigned soon after the charges were made public.
The elder Greenberg stayed on longer, protesting that the charges were unfounded. The board of directors of AIG pushed him out in March 2005. That May, Spitzer dropped the other shoe, bringing charges against AIG, Greenberg, and the former AIG chief financial officer, Howard I. Smith, alleging fraud and violations of insurance and securities laws.
The AG office hasn’t been able to make any of these charges stick. Spitzer himself dropped some of the charges while he was still AG.
Mr. Greenberg was (understandably) unhappy about his directors’ rather spineless appeasement of Spitzer, and he continued through various entities to control a large chunk of the equity of AIG. In recent months, he had been acting like a man in search of vindication and return.
In November 2005, Greenberg filed a notice with the SEC that he and entities he controlled had decided “there are opportunities to significantly improve the Issuer's [AIG's] performance and strategic direction, as well as the value of their investment." The filing committed Greenberg to nothing, not even to "holding discussions" with other shareholders. Why does one file a document with the SEC that says in effect, “I'm not all that happy with the return I'm getting and I might talk to some others to see if they feel the same way”? People who hold large chunks of stock in a publicly owned company are required to keep the public, and so the management of that company, apprised of their intentions, so there are no takeovers-by-ambush. Despite all the cautious lawyerly wording, then, it appeared to many that Greenberg was setting the stage and some sort of struggle for control was in the offing.
The Stone Wall II
The following month, the Insurance Department of the state of New York stepped up to the plate. New York law says that if an individual stockholder, or a group acting together, acquires more than 10% of the equity of a company selling insurance within that state, the acquirer becomes a "controlling entity" – which means such an acquisition requires state permission.
In December, the department calculated that Greenberg and various affiliated entities constituted a “group” in the relevant sense, and demanded that he “cease and desist from engaging in any further activities aimed at exercising a controlling influence over AIG.”
An attorney for Greenberg, Marcia Alazraki, replied at once, saying that the various entities involved weren't a group in the relevant sense, and asked for a meeting with NY officials to discuss the issue. Ms Alazraki knows the issue well. She was deputy superintendent at the NY Dept. of Insurance herself in the early 1980s, and assistant counsel to the Governor of the state, Hugh Carey, before that (1979-81).
Stone Wall III
But Greenberg persisted, in the belief that he could rescue AIG from what ailed it. In a filing with the SEC on September 16, he said that he had retained an advisory services firm in connection with his investment in AIG and that he was pursuing a variety of options.
Finally, though, the company interposed between itself and its former boss the largest stone wall of all, the United States. It signed a definitive agreement to set up a $85 billion credit line with the Federal Reserve Bank of New York, and to surrender 80% of its equity to the federal government. (As of September 30th AIG has drawn down $61 Billion on the credit facility)
Obviously this implied a devastating degree of value dilution for the shareholders, including Greenberg, who owned roughly 11% of the stock at that point. When he left the company, he held $20 billion worth of its stock. Those holdings are now worth about $800 million.
A less persistent ‘iron filing’ might have taken his losses and drifted away at this point. By contrast, Mr. Greenberg’s interest in those asset sales has an inspirational quality to it, as befits his “greatest generation” bona fides.
This entry was posted by Chris Faille who is a journalist covering activist investing issues and a regular contributor to our blog.
Wednesday, October 1, 2008
Recap of the 2nd Annual Hedge Fund Activism & Shareholder Value Summit
Last week more than 20 activist investors, who collectively manage about $50 Billion in assets (give or take a few billion on any given day in this environment…), gathered at the Biltmore in Phoenix , AZ
In fact, it would not be surprising to see a dedicated activist fund concentrated on the financial services sector. (This would be a fund similar toPershing Square
All of the components to a successful activist campaign are aligned:
Proponents of activist investing claim:
Japan
5. There will continue to be a confluence of three trading strategies:
Hedge Fund Activism (together with) Merger Arbitrage (together with) Private/Public Equity Investments.
[Here’s a link to the conference agenda]
This was probably the largest assembly of activist hedge fund managers in the world and included:
Atticus Capital, Barington Capital, Bulldog Investors, Crescendo Partners, Dalton Investments (Japan), Ironfire Capital, Jana Partners, Locksmith Capital, Myca Partners, Nanes Balkany Partners, New Mountain Capital, NewCastle Management, Oliver Press, RLR Capital, Sandell Asset Management, Shamrock Activist Value Fund, Spotlight Capital, Taiyo Pacific Partners (Japan), Steel Partners, Steel Partners (Japan), Taylor Investment, The Children's Investment Fund Management (TCI).
As Co-Chairman of the conference, I was asked to recap the two-day event and highlight some of the significant developments being made within the activist investing space.
Here are five of the major points made during the conference:
1. Activism is here to stay and the current economic environment will continue to attract new opportunities for activist-style investments.In fact, it would not be surprising to see a dedicated activist fund concentrated on the financial services sector. (This would be a fund similar to
All of the components to a successful activist campaign are aligned:
- A current state of affairs largely brought about by poor governance.
- Lousy management.
- Distressed assets (which usually instigate activists’ purchases).
- Discontinuities driven by macroeconomics, government intervention, and industry structural shifts (such as Goldman Sachs being restructured as a holding company).
- The forthcoming and inevitable industry-wide consolidation.
- Bruce Richards, a keynote speaker from Marathon Asset Management, suggested that at least 300 financial institutions will either fail or merge with a stronger firm within the next 12 months.
(i) Activists are taking a longer-term perspective on investments (almost as long-term as private equity vehicles).
(ii) Activists begin their campaigns by communicating their in-depth analysis for value improvements at target companies. These are communicated in the form of whitepapers and lengthy PowerPoint presentations (see TCI/3G's presentation for CSX Corp.).
(iii) More than ever before, activists are nominating well-qualified and truly independent board candidates with operating experience and/or deep industry knowledge.
(iv) Both the investor and the company are seriously attempting to constructively engage in dialogue and show a willingness to negotiate reasonable settlement agreements in order to avoid a full proxy contest.
3. There continues to be a healthy debate about the merits of activist investing.Proponents of activist investing claim:
- Shareholders are the true and rightful owners of a business and the board’s duty is to protect and enhance value at all time.
- Activists play an important role which highlights undervalued companies, inefficient use of capital, underperforming assets, bad management teams and ineffective governance – including excessive compensation schemes not aligned with shareholder value improvement.
- Activist investors are incentive-ized by return on investment and therefore are less inclined to enter into a costly activist campaign unless there is significant economic interest that can be generated for ALL shareholders. Every dollar spent by an activist investor reduces their return; on the flip side, companies spend corporate resources (i.e. shareholder’s money) to fight activist investors and do not have an equal incentive to avoid a costly battle.
- Activism creates a catalyst for companies to act. Activist campaigns often cause companies to improve communications which help close the gap between intrinsic value and current market value.
Opponents to activist investing claim:
- Activism has caused a shift in the boardroom from focusing on long-term value objectives to near-term activities in order to appease short-sighted investors.
- Activism has caused factions within the boardroom which has further isolated the CEO and promotes a culture of investigation and compliance.
- Activism has squashed investments in technology and innovation which will come back to haunt us in years to come.
- When added up, the cost of activist activities far outweighs the value generated by them. Many researchers fail to compute the loss in value associated with organizational instability, customer acquisition and retention, and management distraction. In addition, companies now spend more time monitoring shareholders for insurgents, adjusting By-laws to prevent against possible attacks and discrete accumulations of stock, and examining strategic alternatives (and paying the high costs associated with these examinations) in order to appease short-term oriented shareholders.
5. There will continue to be a confluence of three trading strategies:
Hedge Fund Activism (together with) Merger Arbitrage (together with) Private/Public Equity Investments.
Posted by Damien Park, Hedge Fund Solutions.
For additional information about the conference or to discuss activist investing, contact me at dpark@hedgerelations.com or 215-325-0514.
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