Companies Beware...It's Shark Season

Miss Manners wouldn't be pleased. When Robert L. Chapman Jr. bought a stake in Houston software vendor BindView Development Corp. (BVEW ) in April last year, he fired off a letter of introduction to the board. They should, he suggested, take a few thousand bucks of company money, enroll in a college course on "basic finance." He explains matter-of-factly, "We don't want to develop a friendship with these folks, because it makes it a lot harder to take your gun out and shoot [their company]."

Chapman is one of a growing number of self-described investor activists who target small companies like BindView--typically with less than $500 million in market cap. His goal: "maximizing shareholder value." He buys a 5% to 10% stake, lobbies other shareholders, and, if necessary, wages nasty proxy fights.

Other activists say the 36-year-old founder of Chapman Capital LLC, an El Segundo (Calif.) hedge fund, is giving the business a bad name. "He's an attack dog," says a longtime value investor who asked not to be identified. "This kind of approach can backfire, because it incites the board to circle the wagons and protect the CEO," says Providence Capital's Herbert Denton.

Perhaps. But Chapman's investors aren't complaining: His six-year-old fund, with about $100 million in assets, is flat year-to-date, but was up 50% in 2001 after a 41% gain in 2000.

Often, the dogged Chapman wins simply because he has a knack for embarrassing management in public. "They do a news check on me and realize I'm the worst guy to p--- off," he says. "They return my calls within minutes. Being the bad guy pays."

Chapman worked in trading and arbitrage at Goldman, Sachs & Co. during the late-1980s heyday of the arbitrageurs. He later worked at County NatWest Securities and Scudder, Stevens & Clark. His hero is none other than raider Carl Icahn.

Critics say Chapman and his ilk are pure opportunists. They don't care about better management or long-term shareholder value. They want to see companies sold off--fast--so they can pocket a profit, then move on. Chapman doesn't deny that. "We want companies that are digestible, so that we can force [them] to be bought. That's our big home run," he says.

So far, he has strong-armed 10 companies into liquidating or selling off most of their divisions. They include those with forgettable names like Command Systems, Preview Systems, and USA Detergents. Lately, Chapman has been putting the heat on Cinar Corp. (CINRB ), a Montreal animation company. He forced both the CEO and chairman to resign in April. Then, his fund and two others overthrew the board and installed their own nominees and a new chairman. They're now seeking a buyer.

"Corporate governance is just a fancy way of saying a company needs to be run better," he says. But in Chapman's worldview, you run your company badly, you pay.

By Marcia Vickers in New York

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