This summer, Wall Street’s activist top guns are shooting blanks, with high-profile and often ugly flops in recent weeks — prompting observers to question whether the strategy is losing some of its cachet.
From Bill Ackman’s embarrassing loss of his JCPenney board seat to Dan Loeb’s sayonara from Sony, it appeared that saber-rattling has been on a losing streak when it comes to boosting stock prices.
Even Carl Icahn — who has been agitating corporate boards for decades — failed to get shares of computer maker Dell to move as high as he would have liked, although his meddling recently forced founder Michael Dell to raise his bid for Dell by 10 cents, to $13.75 a share.
While it may turn out to be nothing more than a fluke, some experts say they see the start of a trend in which even the toughest, wiliest activist faces more losses than in the past.
That’s because today’s activists — flush with cash after the financial crisis — are going after bigger game. And large companies can be the hardest to change.
“I think the size of the companies is definitely playing into the difficulty of the activists having an effect,” said Paul Hodgson of BHJ Partners, a corporate-governance research firm.
Hedge funds overall are having a bad year when compared with vanilla equity index funds.
According to a Goldman Sachs poll, the average return through mid-August of 708 hedge funds with a total of $1.5 trillion in gross assets is just 4 percent versus the S&P 500’s 20 percent return.
As such, smaller retail investors should avoid blindly following big-name hedge fund managers into these fights, said Eleanor Bloxham, CEO of The Value Alliance.
“When you’re talking about a massive strategy change or a realignment of the work force, it’s more difficult,” especially at large companies, Bloxham said.
Indeed, when Loeb, founder of hedge-fund firm Third Point, sent a letter to Sony’s president and CEO, Kazuo Hirai, in May calling for “change,” including the spinoff of Sony’s entertainment unit, Loeb had predicted his plan would boost the stock by 60 percent.
But actor George Clooney blasted the hedgie’s intentions and called him a “carpetbagger.”
Ackman, founder of Pershing Square Capital, had an even bigger flameout at retailer JCPenney, which has seen its shares fall precipitously since he took a 17 percent stake in 2010. At the time, the stock was trading above $30 a share. Now it’s at $13, following a failed strategy by Ackman’s pick for chief executive, Ron Johnson, to gut the retailer’s entire business model.
After a failed attempt to boot Penney’s current CEO, Myron Ullman, who was brought back in April to fix Johnson’s mess, Ackman stepped down from the board this month.
Starbucks CEO Howard Schultz blamed Ackman for Penney’s woes and accused him of “trying to rewrite history” by pointing the finger at Ullman.