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Activist Investments By Carl Ichan Essay

2938 words - 12 pages

Hedge fund activistsrely on their ability to guide corporate decisionsin amannerthat will
unlock value at an underperforming company by alteringmanagement and strategic direction.
Shareholder activists will make sizable investments in companies with the intention of affecting this
“positive” change. There has been significant debate whether these activists are truly adding value to
corporate shareholders. However, it does seem that the negative connotation associated with the term
“activist” seems to be fading. Even the current Chairwoman of the Securities and Exchange Commission,
Mary Jo White, remarked at a conference in December 2013 that the view of shareholder activists has
progressed away from the negative association. In this paper, I will be focusing on activist investments
made by billionaire activist, Carl Icahn. Icahn has been called a “corporate raider” (particularly in the
1980s) but this moniker has seemed to evolve into “activist investor” over the last several years. His
track record is undoubtedly mixed, however, it appears that in the last ten years, his wins outnumber his
losses (33 to 19)1
and the overall returns of his activist investments have significantly outpaced the
equity markets.
Shareholder activism can trace its early roots back to the 1930s, after the stock market crash of
1929. In reaction to the crash, legislators passed new laws such as the Securities Act of 1933 and the
Securities and Exchange Act of 1934 in an attempt to protect prospective shareholders. However, the
passage of these new laws could did not completely address the changes that shareholders desired in
corporate America. As a result, shareholder activists attempted to affect change with corporate
management teams where the new laws could not reach. Early activists were unsuccessful because they
were unable to connect with and garner support of fellow shareholders, therefore giving them little or
no leverage with corporate management. Typical investors, at the time, would rather sell the securities
of a particular company rather than confront management. As technology advanced, it became much
easier to communicate with other shareholders to achieve a common interest.
In the 1980s, institutional investors become more prominent and were able to purchase
significant equity stakes in companies. Institutional investors are organizations which pool substantial
amounts of money and make investments in securities and other asset classes. The types of institutional
investors include: pension funds, state and local retirement funds, mutual funds and closed end
investment trusts, insurance companies, endowments in addition to operating companies. During the
1980s, certain institutional investors were more engaged and involved with the corporate decision
making through their equity investments. The institutional investors were able to influence
management decisions through shareholder proposals which largely would focus on...

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