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Activists Show More Bluster than Brawn

But companies are responding to the threats of Carl Icahn, Dan Loeb, John Paulson and others by negotiating a solution.

The activists are seemingly getting more restless. In recent weeks a number of hedge funds have shown increasing inclination to stir things up in corporate boardrooms.

Or have they?

On Thursday CVR Energy rejected Carl Icahn’s offer to acquire the refiner for $30 per share, asserting it “is inadequate and not in the best interests of its stockholders.”

Icahn, who owns 14.5 percent of the shares, is opposing CVR’s plan to sell part of its CVR Partners subsidiary and pay a special dividend to shareholders. Rather, he called on the company to find a buyer. He then made his acquisition offer and even promised to pay the cash difference if another bidder came along and offered more money.

Last week Starboard Value, which enjoyed a very busy 2011, launched a proxy fight against AOL, nominating five directors to the Internet company’s board of directors.

This move came on the heels of Wausau Paper’s agreement to nominate two directors with expertise in the tissue and paper industry recommended by Starboard.



Last month, Dan Loeb’s Third Point said it would nominate four directors to Yahoo’s board. 

Even John Paulson, not usually associated with activist investing, jumped into the fray. Last month he fired off a letter to insurer Hartford Financial Services Group, urging it to spin off its property and casualty business. Since then the stock has climbed about 4 percent.

While it seems like hedge funds have stepped up their activist activity, the overall data does not agree.

“There’s been some high-profile activism/proxy fight announcements by hedge funds of late but we’re at about the same pace/slightly less than the same period last year,” says John Laide, president and senior product manager at FactSet. He counts 27 new activist campaigns so far this year, down 25 percent from 36 during the same period in 2011.

This continues a longer-term trend. In 2011, there were 46 proxy fights launched by hedge funds, down from 51 the prior year, 58 in 2009 and 72 in 2008.

What’s more, just 13 went the distance in 2011, or just 29.2 percent of the total initiated, compared with 22 that went the distance in 2010, or 43.1 percent of the total launched.

In fact, between 2006 and 2009 typically 29 to 33 proxy fights went the distance, which virtually each year worked out to about half of the number initiated by hedge funds.

So, what accounts for both the recent decline in the number and percentage of proxy fights that have gone all the way? 

Two things: One, more companies are willing to come to a negotiated solution, like Wausau Paper did. And two, more hedge funds have shown they have more bluster than brawn.

That’s too bad for those who think proxy fights make for great spectator sport.

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