Shareholder Activism in Action: Icahn Eyes Yahoo!

From Stockpickr's Activist Track Stocks:

Since most hedge funds get paid based on their returns for the year, managers who want to get the most out of a stock investment often turn to shareholder activism as a way to increase shareholder value and ultimately boost their returns.

Here at Stockpickr.com we track all of the Latest Activist Situations recorded by StreetInsider.com 13D Tracker for those interested in possibly piggybacking these activist funds.

Activist hedge fund Harbinger Capital Partners has purchased a 5.9% stake in starch goods company Corn Products International CPO. Harbinger disclosed that it owns about 4.34 million shares of Corn Products.

Corn Products has a forward P/E of 13, a PEG ratio of 1.5 and quarterly earnings growth of 29%. The corn refiner also recently boosted its 2008 profit guidance and reported a 29% rise in first-quarter profit. Keep an eye on this one.

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From Investors Fighting Mad:

Just a half decade after the stock market recovered from the collapse of tech stocks, the bursting of another asset bubble -- in housing and credit -- is refocusing scrutiny on the large executive-pay packages at underwhelming companies.

A revolution that started simmering in the post-Enron era has boiled over, with a new generation of shareholder activists determined to change the corporate status quo. Empowered by rich financial backing, an explosion in digital communications, friendlier laws and regulations, widespread discouragement with the stock market and a sea change in public perceptions, these activists are rattling the walls of corporate boardrooms like never before.

"This is shaping up to be the busiest year on record for activist investors," says Chris Young, director of M&A research with RiskMetrics Group, a firm that advises shareholders on proxy matters.

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From Shareholders Seek 'Say on Pay':

Former Merrill Lynch MER CEO Stan O'Neal left the firm in October after $18 billion worth of securities writedowns tied to subprime and other risky mortgages and a plummeting stock price.

For that, he was sent off with $161 million.

O'Neal's retirement package and the lofty pay for fellow humbled CEOs Charles Prince at Citigroup C and Angelo Mozilo at Countrywide Financial CFC made the trio poster children for rising shareholder anger at the discord between lofty executive pay and lackluster corporate performance.

As the season of annual shareholder meetings gets underway, this year is sure to lend itself to some active, if not downright testy, stock owners speaking out against perceived company injustices, particularly at the banks, brokerages and mortgage lenders. Several large institutional shareholders are coordinating efforts to remedy the situation by pushing for so-called say-on-pay proposals and other measures.

"It's going to be an issue this year. There is no question about it, because there has been criticism of pay packages and pay practices," says Carol Bowie, head of RiskMetrics Group's Governance Institute.

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From Investors Ramp Up Fight for Ballot Choice:

Like baseball, voting for corporate board members is a time-honored springtime tradition.

But that tradition is increasingly under fire from angry shareholders who say the game is rigged.

Because the ballots provided to investors list only one slate of candidates, handpicked by company management, critics say the system is undemocratic and prevents shareholders from appointing representatives who will truly look out for their interests.

Shareholder advocates have been clamoring for years to get equal access to the ballot -- known as a proxy card -- to field alternative choices for company boards. Now, as investors contemplate staggering writedowns at the world's largest financial firms, and as America prepares for a change in the political landscape, some shareholder advocates believe the chance to win proxy access is better than ever.

And while the rich sendoffs of subprime poster-boys Angelo Mozilo, Countrywide Financial's CEO, and Stanley O'Neal, the ex-Merrill Lynch chief, have made "say on pay" the hot-button issue at this year's shareholder meetings, it's possible that this proxy season could turn out to be one of the last in which board elections are conducted without opposing candidates.

"This is one of those issues, if it's ever going to get acted on, it would be in this current market environment, with a change in party in the [Securities and Exchange] Commission and in the White House," says Patrick McGurn, special counsel at corporate governance firm RiskMetrics.

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From Motorola Names Dorman Board Chairmam:

The Schaumburg, Ill., handset maker said that David Dorman will succeed prior Motorola MOT CEO Ed Zander as chairman of the board. Zander, who had fallen out of favor with shareholders such as billionaire investor Carl Icahn, will retire from the post after completing his term at Motorola's annual shareholder meeting on May 5. Greg Brown is now Motorola's CEO.

The appointment of Dorman is the latest shake-up at Motorola. On Monday [April 7], the company said it has reached an agreement with Icahn that will see William Hambrecht and Icahn Enterprises' Keith Meister nominated for election to the board at the annual meeting.

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From Open Book: Pick Stocks Like an Activist Investor:

A wide variety of activist hedge fund managers have taken the time to let me interview them in the U.S., Europe and Asia. I've put everything I have learned about their popular and expanding craft in a new book called Extreme Value Hedging.

Good Activist Investors = Great Stock Pickers

Good activist investors, at their core, are great stock pickers.

Most experienced activist investors typically allocate capital to companies that will improve in value on their own, over a period of time. But, unlike mutual funds or other institutional investors , these insurgent investors won't sit back patiently and wait for that growth to happen.

Instead, activist investors, backed by an increasing amount of both high-net worth and institutional money, identify undervalued corporations, buy large minority stakes and do everything they can to make sure their investment's stock price is on an upward trajectory. To accomplish this goal, activists engage in a wide variety of tactics: anything from collaborating with management behind the scenes to pressing for a value-enhancing merger . Though public perception of activists has them always pressing for mega-deals, just as many of them can be found blocking mergers they consider illogical or destructive.

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From The Art and Science of Measuring CEO Performance:

Of all the potential metrics, earnings growth is among the most critical. "It captures how well a CEO is running the business," says Mary Ellen Carter, a Wharton accounting professor. Adds Brian Cadman, an accounting professor at Northwestern University's Kellogg School of Management and currently a visiting professor at Wharton: "Earnings is generally considered a good metric because it provides a summary measure of value added to the firm over a given period." But regardless of which specific performance metrics are used, "it is important to compare them to historical values or to a 'peer' group of firms," Cadman says.

Wharton accounting professor Wayne R. Guay says most of the financial incentives provided to CEOs and other senior executives are based on their company's stock price. "These executives hold large portfolios of stock and stock options that tie their wealth to shareholder performance pretty closely," Guay says. "For the typical CEO, that is the lion's share of the incentive."

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From Aggressive Stock-Picking: How to Trade Off of Unusual Activity:

Check out Stockpickr's Latest Activist Situations, which is a portfolio based on the mandatory "13D" filings that indicate that an outside investor has taken a major (greater than 5%) stake in the company. A big investor move like this could result in a shakeup in company management, and ultimately a boost for the stock price.

A recent activist situation took place with Freeport-McMoRan Copper and Gold FCX. This month [August 2007], Atticus Capital LP disclosed that it raised its stake in Freeport-McMoRan to over 7% (the stock has steadily gone up since the disclosure). Even with FCX's year-to-date rise of around 30%, an increased stake by Atticus is a strong sign that the stock price can go a lot higher.

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Since "How to Trade Off of Unusual Activity" was published, the share price of FCX has increased over 35%.

To stay up to date on activist moves, don't miss Stockpickr's Latest Activist Situations portfolio.