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Who Really Wins When Activist Investors Attack?

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P&G Denies Trian's Peltz a Board Seat

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Once upon a time, they were known as corporate raiders. They used junk bonds to buy stakes in companies whose entrenched management they hoped to oust and whose undervalued stock they hoped to boost. Today’s raiders, mostly hedge funds, prefer to be called activist investors. And while they talk of changes in “strategic direction” and increases in “shareholder value,” the goal is much the same: to profit from the disruption, while claiming it’s all for the greater good. But do other shareholders, public companies and the broader economy really benefit? Or are activists themselves on the defensive, accused of encouraging short-termism, in which managers aim for better quarterly earnings at the expense of investing for the future? One test came on Oct. 10, when Nelson Peltz asked shareholders of Procter & Gamble Co., the largest company to face off against an activist, to give him a board seat. P&G claimed victory but Peltz is seeking independent certification of the results, which were close.

Carl Icahn and Peltz, two of the more-famous raiders from the 1980s, have refashioned themselves as pro-shareholder activists and are among the biggest players. Peltz prefers to be called a “highly engaged shareowner.” But the most active activist is probably billionaire Paul Singer, whose Elliott Management Corp. has positions in more than 20 companies. A younger generation of activist, which came of age in the late 1990s around the time of the dot-com bubble, includes Dan Loeb’s Third Point LLC, Bill Ackman’s Pershing Square Capital Management and Jeff Smith’s Starboard Value LP. An even younger generation, led by former acolytes of Icahn and Ackman, is now popping up. It includes Keith Meister’s Corvex Management LP, Mick McGuire’s Marcato Capital Management LLC and Scott Ferguson’s Sachem Head Capital Management LP.