By Therese Poletti, MarketWatch
SAN FRANCISCO (MarketWatch) ? Activist investors are popping up among many established technology companies, many of which are in tumult with big, core businesses slowing or under threat from faster growing mobile devices.
Whether or not these activists ? some of which are hedge funds ? will have a positive or negative impact on their targets will be the big question for investors, who have to decide early on whether their presence in a stock is a good or ominous sign for their investment.
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The most recent case is Microsoft Corp. /quotes/zigman/20493/quotes/nls/msft MSFT -0.59% . Last week, the software giant disappointed Wall Street with an earnings and revenue shortfall just on the heels of news about a big corporate restructuring. Its shares had jumped to a new 52-week high, as investors over-optimistically assumed that its current problems were limited to the PC business. But some analysts found that the quarter was a letdown on many other fronts, including a slight miss in its server business.
So, on Friday, with its shares tumbling 11.4% in its worst single day performance since 2009 investors could hardly be surprised when Reuters reported that hedge fund/activist investor ValueAct was talking to Microsoft?s board of directors about its wish to gain a seat on the board.
/conga/story/misc/ntk_sixwide.html 242157Rick Sherlund, an analyst with Nomura Research, had predicted such an event. In a note Friday morning, Sherlund said that after the software giant's disappointing results, the company would be ripe for shareholder activism. Sherlund noted that he believes Microsoft?s shares could benefit from the potential for ValueAct to get a seat on the board. One area where an activist/outsider may have an interesting voice is in the company?s online business, which includes search.
Daniel Loeb, founder and chief executive officer of Third Point, was credited with helping to oust former Yahoo CEO Scott Thompson.?Microsoft has lost over $17 billion by our estimation in the search and online business,? Sherlund wrote. ?Why is the company in this business and what are the returns and how is this strategic??
One tech giant has benefited from an outside activist investor. Just Monday, Daniel Loeb, the hedge fund investor who led the charge to oust Yahoo Inc. (TICKER:YHOO) short-lived CEO, Scott Thompson, stepped down from the board. Loeb, who bought a 6% stake in Yahoo in 2011, and eventually got three seats on the board, is credited with pushing hard for Yahoo to hire Marissa Mayer from Google Inc. as its CEO. Yahoo?s shares have jumped over 70% since her arrival, even though its second-quarter earnings showed that her work has only begun. in a statement, Loeb said, ?Since our board?s rigorous search led us to hire Marissa Mayer as CEO, Yahoo?s stock price has nearly doubled.?
So if Yahoo could be an example, at least so far, of the positive influence of the activist investor, Dell Inc. /quotes/zigman/27952/quotes/nls/dell DELL -0.23% might represent the not-so-great side. Billionaire investor Carl Icahn has mostly made a lot of noise and created a lot of distractions since he purchased an over 6% stake in the company, which is trying to go private. Icahn?s fight against Dell founder Michael Dell?s proposal to take the company private at $13.65 a share has held sway with some big shareholders, though, and the company deferred its vote on Dell?s offer until this week. But Icahn separate proposal to buy the bulk of Dell and keep part of the computer maker public is fraught with risk, according to the two big shareholder advisory firms, ISS and Glass Lewis.
Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP., opposes Michael Dell?s bid to take the company private.Still, it is not clear yet what kind of board member ValueAct (which did not respond to requests for comment) could be, if it negotiated a seat on Microsoft?s board. The hedge fund, based in San Francisco, teamed up with private equity firm Silver Lake in 2007 to take the data management firm Acxiom Corp. /quotes/zigman/67626/quotes/nls/acxm ACXM +0.39% ?private, but that deal fell apart. It had pressed Axciom to develop shareholder-friendly moves such as increasing cash flow and improving margins and ultimately waged a proxy war for two seats on its board.
Sherlund noted that ValueAct was probably willing to launch a proxy battle for a seat on Microsoft?s board. ?We think the chances of winning a board seat are high given the dissatisfaction with how Microsoft has failed to optimize shareholder value,? Sherlund wrote in a note on Monday. ?And we suspect Microsoft figures it is better to work through the ValueAct agenda in private rather than in a public proxy solicitation process.? Sherlund believes the ?investor activism is a positive for the stock.? Microsoft did not respond to a request for comment.
Still, investors are bound to get nervous once an activist investor buys stock in a company they own. In some cases, their presence can be beneficial, but ultimately, it is usually a sign that the target company has probably seen better days.
/quotes/zigman/20493/quotes/nls/msft
US : U.S.: Nasdaq
Volume: 12.89M
July 23, 2013 10:15a
Market Cap$266.58 billion
Rev. per Employee$828,181
/quotes/zigman/27952/quotes/nls/dell US : U.S.: Nasdaq
Volume: 2.43M
July 23, 2013 10:15a
Rev. per Employee$508,553
/quotes/zigman/67626/quotes/nls/acxm US : U.S.: Nasdaq
Volume: 26,828
July 23, 2013 10:14a
Therese Poletti is a senior columnist for MarketWatch in San Francisco. Follow her on Twitter @tpoletti.
Source: http://feeds.marketwatch.com/~r/marketwatch/software/~3/iP7W9urOCGg/story.asp
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