HBS – Activist Investors: The Untold Story

HBS – Activist Investors: The Untold Story

Here’s a great article at the The HarbusThe Harbus is the independent, non-profit news organization of Harvard Business School. The article provides some great arguments against the perception that all activist investors are short term focused, aggressive, and meddlers.

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Here’s an excerpt from that article:

Ask many HBS students about the perception of activist investors as perpetuated by the required curriculum (RC), and you’ll hear the words “short-term,” “meddlers,” “aggressive,” and a number of other pejoratives that are neither politically correct nor publishable by the Harbus.  Indeed, many of the cases taught throughout the RC curriculum (across disciplines – FIN, FRC, LEAD, and LCA) characterize activists as just that.

In the Target case, Bill Ackman is portrayed as short-term and impulsive in his thinking and actions.  Then, there was the Ron Johnson (J.C. Penney) case that did the same thing.  In Kerr McGee, Carl Icahn and JANA are described as hell-bent on breaking up a company.  A recent LCA case on Sotheby’s characterized Dan Loeb as antagonistic and belligerent.

Upon closer review, there is a nuanced view of the activist landscape that is more balanced and intellectually honest, one left out of the RC curriculum entirely.  This curriculum has not only deliberately chosen cases casting activist investors in a negative light, but has also impressively managed to do so while neglecting to highlight the root causes of shareholder activism: underperforming and incompetent management teams, corporate boards that are asleep at the wheel, and passive shareholders who don’t have the time, resources, or economic incentives to hold their companies accountable for sub-optimal outcomes.


You can read the full article at The Harbus here.

For more articles like this, check out our recent articles here.

Article by Johnny Hopkins, The Acquirer's Multiple

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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