Bill Ackman’s activist problem is a story with an ironic twist. Bill Ackman, for those of you unfamiliar, is a hedge fund manager, founder, and CEO of Pershing Square Capital Management.
Bill Ackman is similar to Carl Icahn in that he too has a contrarian “activist” investment style which is controversial.
In short, the activist investor seeks to influence the corporation’s behavior by exercising their right as a partial owner.
“the activist investor seeks to influence the corporation’s behavior by exercising their right as a partial owner”
But don’t confuse activism with altruism. More often than not the activist investor is playing the game for his short term self-interests and not the well-being of the company or its employees.
The activist investor is often perceived as a wolf in sheep’s clothing and to some extent, this has been Bill Ackman’s activist problem
Harvey L. Pitt, a former chairman of the Securities and Exchange Commission, questioned whether Bill Ackman’s aims to move stock prices rather than spread the truth.
Bill Ackman’s activist problem has attracted attention
In 2012 Bill Ackman has held a US$1 billion short against the nutrition company Herbalife, claiming the company is a pyramid scheme designed as a multi-level marketing firm. The FBI also investigated whether people hired by Bill Ackman “made false statements about Herbalife’s business model a company which he was shorting.
Bill Ackman “practices” have also attracted that attention from former Rep. Bob Barr who called on Congress to investigate Ackman’s use of public relations and regulatory pressure in his short campaign against the nutrition company.
“In 2012 Bill Ackman has held a US$1 billion short against the nutrition company Herbalife, claiming the company is a pyramid scheme designed as a multi-level marketing firm”
An activist is in most cases not much more than an asset stripper masked as an altruistic activist which could be the naked truth about Bill Ackman’s activist problem
Asset stripping is a term used to refer to the practice of selling off a company’s assets to improve returns for equity investors.
“Enter the ideal partner: Bill Ackman and Pershing Square Capital. Allergan was an obvious target for him as well. It fitted the standard activist game plan: buy back shares, cut costs, spin-off divisions, sell the company and so on,” wrote Forbes.
Bill Ackman, billionaire activist contrarian investor, is an old hand at insurgent campaigns.
“Bill Ackman was an ideal ally for Valeant. Bill Ackman could help Valeant take over Allergan and, by running up the share price, make a handy profit for himself” wrote Forbes.
“Activist David Einhorn pressured Apple, the iPhone maker, in 2013 to return excess cash to shareholders”
But can retail traders and investors profit from Bill Ackman’s activist problem?
Yes, when the likes of Bill Ackman buy into a company speculators can also ride the stock to profitability.
For example, when Carl Icahn pushed eBay to spin off its PayPal business in 2015 PayPal stock price since tripled in value.
Another activist David Einhorn pressured Apple, the iPhone maker, in 2013 to return excess cash to shareholders. Since fiscal 2012, Apple has returned more than $350 billion in the form of buybacks and dividends, with the vast majority of that coming since 2013. In a few words, activist investors create big windfalls for shareholders.
So is Bill Ackman’s activist problem a problem?
Activists argue that they clean up the corporate landscape, they get ride of mediocracy management supported by a complacent board and therefore play a healthy role in the capitalist ecosystem. Other begs to differ arguing that activists are vulture capitalists, corporate radars that destroy business and jobs.
“Asset Value Investors Ltd., or AVI, which owns a 3% stake in the London-listed firm, is pushing back against Pershing Square Holdings’ decision to issue $400 million of 20-year debt without consulting shareholders” – Bloomberg
But the ironic twist of Bill Ackman’s activist problem is that Pershing Square Capital Management is now facing activists of its own, according to Bloomberg.
“Bill Ackman wants to raise $400 million of 20-year debt but shareholders are resisting the move.
Asset Value Investors Ltd., or AVI, which owns a 3% stake in the London-listed firm, is pushing back against Pershing Square Holdings’ decision to issue $400 million of 20-year debt without consulting shareholders” wrote Bloomberg.
AVI argues that the firm has the most debts compared to most of its peers so selling more bonds will limit the company’s ability to close the gap between its stock price and net asset value.
Pershing Square Capital Management’s shareholder AVI wants the firm to shelve the debt plan and replace it with a more aggressive share buyback program.
“We are staggered that the board has decided to further tie its hands in this way” AVI Executive Director Tom Treanor said. “This latest episode has confirmed to us that shareholders would likely benefit from a newly reconstituted board willing and able to properly defend and represent shareholders’ best interests” according to Bloomberg.
So it looks like Bill Ackman’s activist problem is now on home base
Perhaps the word staggered ought to be replaced with perplexed as to why Bill Ackman wants to embark on a $400 million recapitalization program, bearing in mind Bill Ackman’s recent profit surge.
Back in March, I wrote Bill Ackman’s profit surge in the first quarter of 2019 could earn the contrarian investors the title of comeback kid (2019) of the hedge-fund world if his fund can hold those profits throughout the year.
Just three months later Bill Ackman decides to issue $400 million of 20-year debt without shareholders’ consent.
Bill Ackman’s activist problem could be a story within a story. Watch this space.
Dan Loeb targets Sony. Dan Loeb is an activist investor and founder of Third Point, which oversees about $14.5 billion in assets.
Last year the activist investor viewed Campbell soup as a bargain when Third point reported that the soup maker could fetch a takeover value of $52 to $58 per share.
A year later and the activist investor Dan Loeb targets Sony
Dan Loeb's activist hedge fund Third Point is raising an investment vehicle to generate between $500 million and $1 billion so it can continue to buy Sony shares, according to a recent report in Reuters.