RealMoney Silver - Activists Shaking Up Boardrooms Once Again

Activists Shaking Up Boardrooms Once Again
By Tim Melvin
RealMoney.com Contributor
4/29/2008 1:00 PM EDT

Activist hedge funds have been busy all over the planet lately. ASM International (ASMI) , the Dutch semiconductor company, recently announced that it was selling unprofitable divisions. This follows repeated pressure from the hedge fund Hermes. Hermes is not satisfied with these moves and continues to seek the removal of the CEO and five members of the board.

In the U.S., Harbinger Capital won three seats on the board of the newspaper company Media General (MEG) . Harbinger has loudly criticized management of the struggling newspaper and television concern and urged it to sell properties and pay down debt. This follows Harbinger's recent success in winning seats in the board of New York Times Co. (NYT) .

Carl Icahn has been pushing for changes at Motorola (MOT) , Blockbuster (BBI) and Biogen (BIIB) . Nelson Peltz is (finally) buying Wendy's (WEN) . Wilbur Ross has been everywhere, buying mortgage companies and bond insurance companies, and now he is casting his eye at the banking industry.

I have written about the potential for tracking activist investors. They tend to be successful in forcing changes if not outright sales at many of the companies they target. The returns from some of these funds have been off the charts over the years, and I have found them to be a valuable source of ideas.

With that thought in mind, this afternoon I went sniffing through the filings of several of the more successful funds that specialize in this type of investing.

Steel Partners is always one of the more active funds. Run by veteran investor Warren Lichtenstein, the $4 billion fund has been enormously successful since opening in 1996. The company recently sued one of its latest targets to force it to hold an annual meeting. Point Blank, which makes body armor for the military and law enforcement, had postponed its annual meeting to review strategic alternatives. Steel Partners had previously offered to buy the company for no less than $5.50 in cash, but management was reluctant to sell. Steel has every intention of launching a proxy fight and nominating enough directors to the board to effect the takeover. The offer is a fairly large premium over the current stock price.

The fund is also pushing Conseco (CNO) to review alternatives including the outright sale of the company. The struggling insurance company recently rebuffed the fund's attempt to nominate two directors, but it has retained an investment bank to review possible strategic alternatives. It was not discussed whether a sale of the entire company was on the table. The company has seen it share price drop by over 50% in the last year and has attracted the attention of several value and activist funds. Currently, Steel Partners owns around 8% of the outstanding shares.

The fund has also had recent success in its dealings with the drilling concern Rowan (RDC) . In return for Steel Partners withdrawing its board nominees, Rowan is selling its manufacturing division LeTorneau Technologies. If the transaction to sell the division is not completed by the end of 2008, Steel Partners' Lichtenstein will be appointed to the board. Under the terms of the agreement, Rowan will buy back $400 million of its stock with the proceeds.

One of my favorite cheap stocks, Charming Shoppes (CHRS) is also feeling the heat form activist investors. Following filings and the launch of a proxy fight by the two funds that formed the Charming Shoppes full-value committee, the company announced that it was going to explore the sale of what it considers noncore assets.

The company has retained Banc of America Securities to explore the sale of its catalog operation to focus on the core store business of Lane Bryant, Fashion Bug and Catherine's. The two funds, Myca Partners and Crescendo Partners, do not appear to be appeased by the move, as they have announced their intention to launch a proxy fight and elect three directors to the board.

Barington Capital, another of the more successful activist funds, recently filed its 13HFR with the SEC, listing its holdings for the end of the quarter. It continues to list Pep Boys (PBY) as one if its largest positions. Barington has long maintained that the company's real estate and lease holdings were worth far more than the price of the stock. With Pep Boys' stock price continuing to fall amid the poor retail environment, the fund is not likely to reduce the pressure on the company to restructure or put itself up for sale.

Barington also has positions in retailers Syms (SYMC) and Dillards (DDS) . Together with fellow activist investor the Clinton Group, Barington recently elected a director to the board of Dillard's in an attempt to unlock the value of the shares. It also forced Syms to re-list its shares and begin taking steps to maximize shareholder returns at the discount clothing retailer.

Tracking activist investors has been a very successful tactic in the past, and there is every reason to believe it will continue to work. Fortunately, it is one of the easiest investing methodologies to track. There is no need to subscribe to Web sites or pore over daily Fed filings. Simply start a news reminder on whatever search engine you like for the terms "activist investor" and "13-D filings." Virtually all of the activities of the most prominent and successful activists will show up in your email inbox every day.