Elliott Funds’ Flurry a ‘Harbinger’ of Activist New Year

Activist investor Paul Singer has had a busy week.

His New York-based hedge funds Elliott Associates LP and Elliott Management Corp. established a floor price for a technology takeover, won board seats at another, persuaded an oil company to prepare to spin off its retail unit, and reaped a higher price for a European drug distributor -- all in two days.

The rapid series of announcements stands out even amid an overall surge in investor campaigns that pressure management to make changes to boost shareholder returns. The number of U.S. companies targeted jumped 10 percent to 356 in 2013 from the year before, according to Damien Park, managing partner of Doylestown, Pennsylvania-based Hedge Fund Solutions LLC. Funds that engaged in activist campaigns climbed by 17 percent last year to 448 as their war chests swelled, Park’s data show.

Elliott’s flurry, reflecting campaigns begun last year, “is a harbinger of things to come from them this year,” said Park. “There was a lot of activity last year so maybe next week we’ll see more coming from some of the other activists.”

Elliot Sloane, an outside spokesman for Elliott, said the fund managers declined to comment.

Since Singer, 69, started Elliott in 1977, its flagship fund has returned about 14 percent annually, losing money in only two calendar years, 1998 and 2008, according to data analyzed by the Bloomberg Billionaires Index.

Last year, Elliott’s 12 percent return beat the hedge fund industry’s 7.4 percent performance, while trailing the nearly 30 percent gain by the Standard & Poor’s 500 Index, according to the Bloomberg Hedge Fund Aggregate Index. Elliott manages $23.9 billion.

Distressed Companies

Elliott often has taken positions in distressed companies, including Enron Corp., and the debt of nations including Argentina and Peru. One technique Elliott has repeated: making a takeover offer for a targeted company to flush out higher-paying buyers. That happened with its bid in 2010 for software maker Novell Inc., which instead agreed to be acquired eight months later by Attachmate Corp. Ten of Elliott’s 13 takeover targets have been technology companies, data compiled by Bloomberg show.

The latest event came yesterday morning when Elliott reached a standstill accord over board nominees with Compuware Corp., which spurned a takeover bid from the activist last year. The firm will nominate two directors and agreed to vote in favor of a reconstituted Compuware board, with six new members out of 11 at its upcoming shareholders meeting.

New Board

Under Elliott pressure, Compuware Chief Executive Officer Bob Paul has spent the past year trying to show shareholders he can increase their return without a takeover. That’s included selling the company’s Changepoint, Professional Services and Uniface businesses to Marlin Equity Partners for $160 million. It also spun off its Covisint division in an initial public offering in September.

Those actions had limited effect on the company’s stock. Shares climbed 3.1 percent last year and Compuware’s stock fell 2.3 percent yesterday after the announcement.

Earlier in the day, Elliott wrested a higher offer from McKesson Corp. for German drug distributor Celesio AG. Elliott holds more than 25 percent of Celesio voting rights. It had opposed the original bid of 23 euros as too low.

The sweetened offer of 23.50 euros ended a stalemate that threatened to derail San Francisco-based McKesson’s plan to expand its drug distribution business in Europe.

Busy Wednesday

On Jan. 8, U.S. oil producer Hess Corp., another Elliott target, filed paperwork to spin off its gasoline stations while also pursuing an outright sale of the business.

Elliott, Hess’s second largest stockholder according to data compiled by Bloomberg, has been pressuring Hess since early last year, threatening a proxy fight. In May the company added three board members nominated by Elliott to head off the proxy battle.

Hess raised $6.5 billion from asset sales last year, Chief Executive Officer John Hess said in November, and the company earlier announced it would close or sell its refineries and divest the retail business to focus on oil production and exploration.

Elliott also offered on Jan. 8 to buy Riverbed Technology Inc. for $19 a share, valuing the computer-networking company at $3.08 billion. The proposal, which helpfully included a draft merger agreement of about 78 pages, should prompt an effort to find other potential buyers, Jesse Cohn, a portfolio manager, wrote in a letter.

“We are aware that numerous parties have expressed acquisition interest in Riverbed, and this structure guarantees that the company will secure a healthy premium for its stockholders while holding open the opportunity to obtain an even higher premium,” Cohn wrote.

Goldman Review

Elliott began acquiring shares in September, amassing almost 11 percent, and started pressuring Riverbed to review its strategy and capital structure in November, calling the stock “significantly undervalued.” Riverbed then started working with Goldman Sachs Group Inc. to study strategic options, according to people with knowledge of the situation.

The company also reacted by adopting a poison pill imposing a “significant penalty” upon any shareholder acquiring 10 percent of the company’s stock without the board’s approval.

Riverbed shares climbed 9.4 percent on Jan. 8 after the takeover offer was announced. The stock has risen 29 percent since Elliott disclosed its holdings and called for a strategic review Nov. 8.

The events of the week could augur not only more activism but also more mergers and acquisitions this year, said Ken Squire, president of 13D Monitor, which tracks activist funds.

“Activism is an indicator of M&A -- they’re the ones that get it started a lot of the time,” said Squire. “This could be a good indicator for M&A starting back this year.”

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