Corporate battles will get noisier in 2015

 

Kaja Whitehouse, USAToday    7:25 a.m. EST January 1, 2015

Activist investing has never been polite. But their battles could get even uglier in 2015 as hedge funds continue their trend toward piling into the same stocks.

So-called activists, who push for change at undervalued companies, have been crowding into many of the same companies in recent years, including gadget-maker Apple, auction house Sotheby's, car rental company Hertz and restaurant operator Darden Restaurants.

It's a trend expected to intensify in 2015 as stock prices rise, which could narrow value-driven investing opportunities, experts said.

That will lead to louder campaigns against companies, which could increase their chances of success. It could also open the door to infighting.

"There are too many players and not enough companies," says Andrew Freedman, an attorney with Olshan Frome Wolosky who works with activist investors in New York. "With that comes the potential to butt heads on the same positions. It's bound to happen."

Freedman cited the now infamous brawl between billionaire Carl Icahn and hedge fund manager Bill Ackman over energy drink company Herbalife. Technically, Ackman is not doing shareholder activism in Herbalife since he's pushing for the stock to decline rather than rise. Still, it's an example of how too many outspoken and aggressive hedge fund managers in the same place can lead to fireworks, experts say.

Medical technology company ConMed also got caught in an activist brawl in 2014. Two days after the board announced plans to settle an impending board battle with New York-based hedge fund Coppersmith Capital, activist investor Voce Capital, which was also seeking board seats, cried foul in a press release that also attacked Coppersmith's nominees.

Bruce Goldfarb, who helps activists run campaigns for board seats, says disagreements are already happening behind the scenes — thanks to hedge-fund crowding.

"What we see is that different investors do disagree at times on strategy and approach," says Goldfarb, CEO of Okapi Partners. "But most reasonable people will agree to disagree or find a way."

Indeed, when investors can agree on a strategy, or agree to take the backseat to another investor's plan of action, they may be increasing their chances of success.

Sotheby's CEO William Ruprecht stepped down in November, six months after Third Point's Dan Loeb won three seats on the board, which he gained with support from fellow activist Mick McGuire of Marcato Capital Management.

In October, hedge fund Starboard succeeded in replacing the entire board of Darden Restaurants, the owner of Olive Garden, with backing from fellow activist investor Barington Capital.

Pet supply company PetSmart recently agreed to sell itself to a group of investors for about $8.7 billion due to pressure from Rosenstein's Jana Partners, which found support from fellow shareholder Longview Assets. Together, the two funds owned close to 20% of PetSmart's stock.

Even giants like Apple and Yahoo have been getting tag-teamed by vocal hedge fund critics.

Yahoo's Marissa Mayer is under pressure, meanwhile, from two outspoken investors, hedge fund Starboard and Eric Jackson of IronFire Capital. Both Starboard and Jackson have called for Mayer to consider acquiring competitor AOL, among other changes.Icahn kicked off his very public campaign to get Apple's Tim Cook to return more money to shareholders in the form of buybacks only after fellow hedge fund manager David Einhorn drew attention to Apple's cash-rich coffers with a similar campaign.

© 2015 USATODAY, a division of Gannett Satellite Information Network, Inc.