Anything You Can Do, Icahn Do Better

The pressure on companies from activist shareholders continues to grow.

Tim Cook’s nightmare is over, but John Donahoe’s has just begun. On February 10, Carl Icahn, the godfather of activist shareholders, ended his campaign to get Cook, the boss of Apple, to return some of its $160 billion cash mountain to shareholders through share buy-backs. Icahn declared victory, although Apple is not handing back as much of its cash as he had wanted. His next target is eBay, which he is pressuring to spin off PayPal, its online-payments business. Donahoe, eBay’s boss, has told Icahn to get lost, but surely knows he cannot brush off the pugilistic investor so easily.

A visit from an activist shareholder is now a possibility for any publicly traded company: if not the 77-year-old Icahn, then one of the growing army of younger imitators he has inspired. Cook was first put under pressure to “stop hoarding cash” last year by David Einhorn, boss of Greenlight Capital, a hedge fund. Having shaken up Yahoo’s management and strategy in 2012, Dan Loeb and his fund, Third Point, have turned their attention to Sony, calling for it to separate its electronics and entertainment arms; to Sotheby’s, an auction house they want to repurchase shares; and to Dow Chemical, which they want to shed its petrochemicals business.

Nelson Peltz, who has been a shareholder activist almost as long as Icahn, last month joined the board of Mondelez, a snacks business he had targeted. TCI, a London-based fund run by Chris Hohn, has rediscovered its activist mojo after having been badly hurt by the financial crisis. Last year it urged EADS (now Airbus Group) to sell its military-planes business, and took on the management of Japan Tobacco. Steve Ballmer was helped on his way out of Microsoft’s top job by ValueAct Capital, run by Mason Morfit.

Last month Bill Ackman’s Pershing Square made a tasty profit when Suntory acquired Beam (the maker of Jim Beam bourbon), which had been spun out of Fortune Brands as a result of his activism. But Ackman has also demonstrated that activists have no monopoly on wisdom: Ron Johnson, the new boss he lobbied for J.C. Penney to install in 2011, made things worse at the struggling retailer, and lasted just 17 months. Ackman has been at loggerheads with Icahn and Loeb over Herbalife, a nutritional-supplements business. Ackman has shorted its shares, calling the firm a “pyramid scheme” (a charge Herbalife denies). His rivals have gone long on them. So far, Ackman is out of pocket.

The activists’ growing influence has many causes, including rule changes that have given shareholders more voting power and have made institutional investors cast their votes more thoughtfully. Social media have made it easier for activists to mount a campaign: Icahn now tweets like a budgie on speed. And, says Bob Monks, a campaigner for shareholder rights, Icahn has had a huge impact by “making it clear to the greediest people in the world that you can make a lot of money out of activism.”

2 thoughts on “Anything You Can Do, Icahn Do Better

  1. “a recent paper by Lucian Bebchuk of Harvard Law School and others, examined the roughly 2,000 interventions at companies by activist funds from 1994 to 2007. Over the five years following an intervention both the share price and the operating performance of the target company improved, on average. The operating performance got stronger towards the end of the five-year period, not weaker.”
    Lies, damned lies and statistics.
    Without comparing these companies to companies without activist shareholders, the study is worthless. This shows that you can make statistics show whatever you want

  2. Carl Icahn very rarely misses the mark. He sees clearly that eBay’s future is rather bleak and that PayPal has been propping it up for quite some time. Ebay could easily drag PayPal down, but freed from the fetters of eBay, PayPal could soar to incredible heights. Splitting them up while there is still time is clearly the best move.

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