PROFIT PIRATES Attack of the Bully Boys

Aggressive investors intend to shake up more large companies this year, and are turning their attention to Germany.
Bill Ackman and his company Pershing Square Capital Management are not afraid to divide and conquer.

 

For Bill Ackman, not everything turned out the way he wanted in 2014.

The hedge fund manager set out to prove that Herbalife, a nutritional supplement company, was essentially a pyramid scheme that deceived customers and shareholders.

He hired undercover agents and gave an inflammatory speech in July attacking the company.

But he couldn’t convince the general public or financial markets — and lost millions last year because of it. He bet that the share price of Herbalife’s stock would collapse. Instead, it rose.

That blip aside, 2014 was a good year overall for Mr. Ackman. His Pershing Square Capital Management fund achieved profits of more than 30 percent from January to the beginning of December, according to news reports. Bloomberg ranked Pershing Square at the top of the largest hedge funds.

The company acquired a big stake in the Botox-maker Allergan ahead of a takeover bid by another drug company. In November, share prices rocketed and Pershing earned $2.2 billion.

Mr. Ackman’s tactics as an “activist investor” are controversial. He buys shares in a company, gets involved in its strategy — and then fights tooth-and-nail with management. Activists frequently conduct their disputes not behind closed doors but in public, to increase pressure and get other shareholders on their side.

A typical strategy is to push up the price of market-listed candidates for takeover.

This year, activist investors are preparing for renewed attacks on many fronts, according to market observers. They expect that activists — some of whom are “event-driven” investors — will be even more vigorous in 2015.

Event-driven investing aims to make money in advance of corporate events such as bankruptcies, mergers or acquisitions. Altogether, event-driven funds manage almost $760 billion.

Activists are on the lookout for new targets in Europe. Dorothee Blessing, JP Morgan deputy head of investment banking in Europe

Experts at the investment company Franklin Tempelton forecast that activist strategies will have significant opportunities in 2015 because more mergers and acquisitions are expected.

German firms can also expect interference from activist investors like Mr. Ackman.

“Activists are on the lookout for new targets in Europe,” said Dorothee Blessing, deputy head of investment banking in Europe at JP Morgan.

Dirk Albersmeier, who is responsible for mergers and takeovers at JP Morgan, said “a dozen activist funds are systematically reviewing German firms and looking for opportunities.” Last year, large investors had already built up positions at some German firms, below the notification threshold of 3 percent.

A glimpse of what could come was provided a year ago by billionaire activist investor Paul Singer and his hedge fund, Elliott Management.

The U.S. healthcare company McKesson was seeking a takeover of Stuttgart-based pharmaceutical wholesaler and retailer Celesio. McKesson offered a premium of almost 40 percent on the company's share price at that time.

But that was too little for Elliott. The fund considered the savings made possible by the merger to be undervalued and invested close to €1 billion, or $ 1.18 billion, for a solid 25-percent stake in Celesio.

A poker match ensued and McKesson failed to get a majority of share voting rights needed for a takeover. In the end, only a trick helped – the majority shareholder Haniel, a German, family-owned equity company, purchased Elliott’s stake and then sold it to McKesson.

The hedge fund emerged as victor.

 

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Elisabeth Atzler is Handelsblatt’s banking correspondent and Robert Landgraf is deputy finance editor. To contact the authors: atzler@handelsblatt.com,  landgraf@handelsblatt.com

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