Carl Icahn: Our kind of activist investing isn’t ‘bad for America’

“Warren Buffett’s longtime business partner Charles Munger said activist investing is bad for the U.S. Two of the biggest practitioners, Bill Ackman and Carl Icahn, said not when they’re doing it,” Margaret Collins and Noah Buhayar report for Bloomberg. “Buffett and Munger, renowned for their success with long-term value investing at Berkshire Hathaway Inc. (BRK/A), both predicted at the firm’s annual meeting that activist funds will draw more money. Munger questioned whether the strategy actually improves targeted companies. The tactic is causing a bigger stir ‘than anything has in years,’ Munger said. ‘I don’t think it’s good for America.'”

“‘I 100 percent agree with them,’ said Ackman, 47, who runs hedge fund Pershing Square Capital Management LP, of Buffett and Munger. Seeking short-term gains without creating better businesses is ‘bad for markets, and it’s bad for shareholders.’ Pershing Square typically holds stakes ‘four, five, six years or more,’ Ackman said. He pointed to investments in Canadian Pacific Railway Ltd. (CP) and General Growth Properties Inc. (GGP) as examples where value rose for shareholders. Almost every company he bought into had a higher market value after he exited, he said,” Collins and Buhayar report. “‘I understand and somewhat agree with their criticisms that some activists are going for a short-term pop,’ Icahn, 78 and chairman of Icahn Enterprises LP, said of Buffett and Munger’s remarks. ‘That doesn’t mean you throw the baby out with the bath water. One of the most important things we need in this country is to keep companies accountable.'”f

“Icahn also pushed for changes at Apple Inc. (AAPL)… He has called on the technology company to return more of its cash to shareholders in payouts. Cupertino, California-based Apple said April 23 it will increase its share repurchase authorization by $30 billion and boost its dividend. The stock jumped 8.2 percent the next day, the most since April 2012. ‘We own a lot of stocks long-term,’ Icahn said. ‘I haven’t sold a share of Apple,'” Collins and Buhayar report. “Icahn, who didn’t attend the Berkshire meeting, published an article that day in Barron’s in which he called on Buffett to take a more of an activist role as an investor in situations like a dispute over Coca-Cola Co.’s pay package. Icahn wrote that if Buffett, a billionaire who drew thousands of people to Omaha to hear his thoughts on investing and the economy, doesn’t speak out for changes who will? ‘Activism is extremely important for the future of our country because some of these companies are run badly,’ Icahn said. ‘Some of these boards are a travesty.'”

Read more in the full article here.

11 Comments

    1. I don’t think so. But stocks are an incredibly complex things these days. Initially you sell stock in your company to raise capital needed to grow and expand the company. But no IPO I’m aware of has been so singularly focused: Employees are almost always given shares, which is designed to reward them for their risk in helping bootstrap the company, and then to encourage them to keep helping the company grow since presumably the share price will climb as long as they keep doing what they do.

      To me that’s the only value stock continues to have for a going concern like Apple. They certainly don’t need to sell new shares to raise new capital. So at this point it’s all about employee attraction and retention, viewed from inside the company at least.

      The prevailing mindset at Microsoft was: Get in, let your hiring options vest, sell and move on, a little bit richer monetarily and resumé-wise. The prevailing mindset at Apple has generally been: Get in, do something incredible, watch your shares accumulate and rise in value, keep doing incredible things, etc. The companies can only pay competitive salaries, so the financial rewards have to come from stock appreciation.

      And so with Apple’s business so misunderstood by Wall Street, Tim and company really don’t want to leave their most powerful method of attraction and retention in the hands of those analysts, so they placate the beast while achieving what’s really important to the company: Attracting and keeping good people.

  1. Seeking short-term gains without creating better businesses is ‘bad for markets, and it’s bad for shareholders.’

    Well, a big DUH on that one. It’s laughable, scary and pathetic that it even needs to be said.

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