Andrew Willis: When hedge funds become shareholder activists
- January 18, 2008 8:01 AM |
- By Michael Hlinka
Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).
By Andrew Willis, a columnist with the Globe and Mail
(Listen to the original audio)
Running a hedge fund used to be easy.
We went through a record-setting round of takeovers last year.Tthe hedge fund crowd would simply buy stakes in companies that were being acquired, wait for the deal to actually close, and pocket a tidy little profit. Billions of dollars were invested using this basic strategy.
But now we are into a credit crunch.Takeover traffic has dropped of dramatically. Yet those hedge funds are still sitting on billions of dollars, and they don't get paid if they don't put that money to work.
So what are these highly caffeinated, ultra-aggressive money managers doing? They are creating takeovers and other events that move stock prices, all by themselves.
The academics call this activism - when institutional shareholders try to force underperforming companies to put themselves up for sale, or take other drastic steps to pump up the stock price.
Some of Canada's more prominent CEOs call what the hedge funds are doing a pain in the keister.
Look at TransAlta, the big Calgary utility. CEO Steve Snyder has to deal with a U.S. hedge fund that's demanding he take on $2 billion of new debt, simply to buy back shares. The hedge fund is totally comfortable with the fact that this would leave TransAlta as a junk bond utility. Mr. Snyder is totally opposed to wrecking his balance sheet. So there's going to be an expensive and distracting fight.
Over at Nexen, a $17 billion oil company, the hedge funds want CEO Charlie Fisher to bust up the company. Again, the boss is not exactly enthused about blowing up something he spent a life time building.
Get used to the activists. They've got a lot of money, and they need to put it to work. Sometimes, they have good ideas. On other occassions, these funds are blatantly self serving. But until the takeovers come back, the hedge funds are going to be a big part of corporate Canada.
(Click on the comment link below to share your view)
- Andrew Wahl (19)
- Andrew Willis (13)
- Bob LeDrew (10)
- Dan Noel (1)
- David Baskin (18)
- David Berman (1)
- David Colman (14)
- Deborah Yedlin (29)
- Duncan Stewart (29)
- Ellen Roseman (90)
- Jacqueline Drew (10)
- Jim Bray (25)
- Jim Jubak (6)
- John Gilchrist (4)
- Kelly VanBuskirk (6)
- Kira Vermond (73)
- Loraleigh Kovacik (9)
- Michael Hlinka (183)
- Peter Vincent (16)
- Pierre Battah (1)
- Todd Hirsch (1)
All News blogs
- Kira Vermond: Resolutions for Work
- New Year, new you. At least that's what you're shooting for in 2012 at your workplace. This is the year that you're going to ditch your wallflower ways, speak up in meetings and take the initiative.... Continue reading this post
- Ellen Roseman: Air Miles-Use them or lose them!
- If you're collecting Air Miles, you now have only five years to use them. And if you don't redeem in time, you'll lose them.... Continue reading this post