Value Investing

Milken Institute Activist Panel 2014 Notes

Notes from the activist investing panel at Milken Institute 2014.

Milken Institute Activist Panel 2014 – Clifton Robbins, CR (Blue Harbor)

  • Friendly activists. Back management teams that welcome their involvement
  • Background from General Atlantic and KKR
  • Won’t invest in companies with horrible management

Milken Institute Activist Panel 2014 – Jeffrey Ubben, JU (ValueAct)

  • “Can we interrupt?”
  • On “black hat activist”: their first call is to media, second call to CEO
  • Even those guys (Icahn, Ackman) tried not to but their inclination/temperament is to do that. Try to set public agenda, short-term goals

Milken Institute Activist Panel 2014 – Barry Rosenstein, BR (JANA)

  • “Usually I’m the nice guy on the panel”
  • Happy to be friendly “as long as the company does what I want them to do”
  • Companies don’t want to fight us anymore
  • Always call CEO first

Milken Institute Activist Panel 2014 – Chris Teets, CT (Red Mountain)

  • Constructive activist: are you adding value to the situation?
  • CR: There’s been an awakening of stockholders, boards. Listening to large shareholders
  • JU: Activist activity is “fodder” for daytraders. “Carl tweeting is not helpful.” Stocks separate from fundamentals on back of activist involvement (example EBAY)
  • BR: Management teams used to put up a lot of resistance
  • BR: If management is not forthcoming “I buy more and make them do what they should be doing”. Have to win the debate on ideas, value creation. Let management be agent of change and take credit for ideas
  • JU: “You don’t let them take credit.”
  • BR: “Keep quiet.” “Every once in a while you have to whack somebody.”
  • JU: Activism deserves to be an asset class. But it’s too short-term
    • “When you can get involved in a high quality business, get on board, with a management team you trust, and you’re driving the capital allocation process: you have the opportunity to eliminate reinvestment risk.”
    • Low-risk way of building a business
    • Normal activist: leaves after 1-2 years, at the very time management is finally listening
  • CR: Long-term impact: make board and management think like owners
  • JU: Trying to change industry’s mentality (Corvex/ADT example)
  • BR: Safeway example: new CEO implemented change. Juniper example: new CEO, had three previous CEOs on his board. Activist involvement gave him cover to implement his actions
  • JU: Four roles of an activist:
    • Get management and board off the 90 day clock
    • Make the balance sheet a value creator
    • Simplify the business, more pure play
    • Can result in sale
    • Evolved into building companies a little more
  • JU: Give management team the courage to make painful decisions (Adobe example, transition to SaaS; Gartner example: move from vendors to user-focus, had build salesforce)
  • Today long-only community supports activism, allows activists to effect change with small stakes
  • JU: Microsoft example: it worked because Bill Gates had sold down his stake from 25 to 4.5% and stock had been flat for 15 years. Institutional investors willing to follow. Danger of small stake is “sounding shrill”. Works best if target had tremendous underperformance and long-term investors have moral authority to talk to board on activist’s behalf
  • JU: Mediocre or great business? Always go for the great business
    • Cash flows in good times and bad times allow for value creation
    • Always looking for one board seat, always a ValueAct principal. Low bar for company
    • Never had a problem getting someone to second your motions. Give board all the information, all the facts
  • CR: Convince management team the change was their idea, it’s a sales cycle
  • JU: Management change is so powerful because new manager adopts your plan. Align compensation that feeds that new strategy
  • BR: Marathon Petroleum example. Walked CEO through strategy of spinning off business. CEO: “who will get credit for this?”
  • BR: If management knows you’re not willing to go all the way to proxy fight, you’ll get stuck
  • CT: Let CEO outline their perspective and plans first, then get into dialogue and introduce more difficult topics
  • JU: M&A has been incredibly accretive to acquirers
  • JU: Introduction of poison pill and staggered board took away threat of hostile bid. Created passivity. Activism countering this trend

Milken Institute Activist Panel 2014 Notes

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