Greenberg: Activists Engaging in New-Age Greenmail?
By: Herb Greenberg | 11/26/13 - 02:07 PM EST
SAN DIEGO (TheStreet
) -- Much earlier today I tweeted out: "New wave of greenmail?:Take-Two buys back Icahn's shares. This is becoming a trend w/activists. Should same deal be given all investors?"
Now, in 140 characters or more: Today it was Take-Two (TTWO)
buying back shares from Carl Icahn. Yesterday it was ADT (ADT)
buying back shares from Corvex Capital. Earlier it was Yahoo! (YHOO)
buying back Third Point's stake.
And in each case, the activist investors, who had rattled the cage for change, were on the board -- making them insiders.
Is this a new-age form of greenmail? Greenmail, for those of you not around in the fun old junk-bond days of the 1980s, was when companies would pay corporate raiders (like Icahn at the time) to go away. Typically the raiders would take big stakes in companies with the threat of taking them over.
This, of course, isn't quite the same, but it clearly rubs some investors the wrong way. Among them, longtime hedge-fund manager John Levin of Levin Capital Strategies, who told me: "While there is nothing wrong apparently with an activist going on board and selling stock back to the company - and apparently nothing wrong with the company buying it - I don't feel it's good public policy and fee the public should have a chance to participate in these transactions."
He has a point:
Why should activists who become board members get special treatment? Yes, they may have stirred the pot to get the price higher, but aren't they privy to material insider info? And if so - how do we know that material insider info isn't why they're selling? As a result, shouldn't all investors get the same deal?
I know one investor in one of these companies who said he felt "abused" by the activist. "I was shocked they would take them out, and not me."
The solution? A good old-fashioned Dutch tender auction, which is when a company offers to buy back a specific number of shares at a specific price.
In this case, not even the activists would likely get all of their shares bought, but it's hard to argue that wouldn't be fairer.
Reality: Nobody ever said life was fair, and on Wall Street it can be less fair than life in general. But there are and should be rules, and with these recent stock deals activists seem to be begging for them.
I am and always have been a huge fan of activism, but only in companies that genuinely need to be shaken up. And there are plenty.
But with these special deals activists have the risk of becoming viewed as more opportunistic than activist.
There's a fine line between the two, but to the average coat-tailing investor the former, to put it politely, is considerably less noble than the latter.
-- Written by Herb Greenberg
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