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Activist Shorts Austerity, Goes Long M&A

"The scarcity in two to three years is going to be absolute growth," added Ubben on the panel. After reckless corporate M&A and spending habits in the early 2000s, "investors are on the other end of the spectrum. They are afraid of capital expenditure, research & development; they just want more buybacks."

For those who see rebuilt balance sheets and low interest rates as a validation of Ubben's seemingly contrarian focus on activist spending, he says oil services giant Halliburton (HAL) and commercial real estate developer CBRE Group (CBG - Get Report) may be strong long-term investments, even if challenges persist for a year or two.

Still Ubben -- who managed a long only fund with Fidelity Management in the 1990s before joining Blum Capital for five years and eventually staking out independently in 2000 -- has almost been bitten by his independent and long-term investing stripes amid correlated and volatile markets. Ubben said near the market bottom in 2008, investors were redeeming money from his fund. The corporate austerity he complains of is, after all, a consequence of lingering investor fear.

Nevertheless, hungry to put money to work as investors fled stocks in the crisis, Ubben says in March 2009 he was able to get $1 billion in long-term money from Canadian pension plan, CPP Investment Board, which he used to help fund large investments in Moody's (MCO) and Verisign (VRSN), and the merger between Valeant Pharmaceuticals and Biovail. According to Institutional Investor, ValueAct returned 36% in 2009 and 42% in 2010, as markets recovered.

Redeeming shareholders is not a problem for ValueAct today. Ubben's fund is now closed to new investors. "I live with this idea that your best ideas get diluted by new money coming in," he adds. ValueAct currently holds just 14 investments worth roughly $7.5 billion, according to Bloomberg data.

So what specifically does Ubben see in Valeant Pharmaceuticals and Adobe? For Valeant, which is an international generics and specialty drug-maker, Ubben expects that the company will remain an aggressive dealmaker in the consolidating pharmaceuticals sector.

"In a consolidating industry, go find the buried treasure," says Ubben of Valeant, which has spent over $6 billion on 24 acquisitions at an average premium of 35% since the start of 2009, according to Bloomberg data. The company also failed in unsolicited bids for Cephalon and ISTA Pharmaceuticals (ISTA), in recent years. Teva Pharmaceuticals (TEVA) eventually bought Cephalon for $6.8 billion, and ISTA was acquired by Bausch & Lomb in 2012.

Sellers should beware of an M&A hungry investor like ValueAct, concedes Ubben, who has seen that the other side of the deal negotiation isn't always in a rush to sell: "I guess you have to give shareholders credit for thinking long-term." Ubben won't talk talk about the types of assets Valeant might acquire, when pressed.
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