Institutional Investor's Alpha Magazine - October 2008 - (Page 14)

the deal in June — citing difficult market circumstances — those funds were among the investors offering a $500 million lifeline to be paid back only if the merged company attained a certain proﬁt threshold. When the merger agreement was struck in July 2007, it looked like a win-win deal. Apollo, a powerful private equity group, was offering a lucrative exit to the Huntsman family and the hedge funds that had backed the company’s expansion. But the one-two punch of high oil prices and the credit crunch threw Apollo’s calculations awry. The ruling offers a cautionary tale, perhaps, for any investment ﬁrm that strikes a deal and then pulls out all the stops to get away from it. It might also be a lesson for familyowned companies that become the object of affection for corporate suitors. Huntsman, which has about 14,000 employees and operations in two dozen countries, had rejected a $25.25-per-share offer from Basell Holdings, a Dutch industrial company that presented itself as a similar and like-minded partner. “A strategic-acquisition partner is a lot safer for a company like Huntsman or any family-owned company,” says Roger Shamel, president of Lexington, Massachusetts–based Consulting Resources Corp., an advisory ﬁ rm that specializes in the chemical industry. “It’s more durable and has a chance of working out.” — Darrell Delamaide It’s Official: Hug It Out R Sun Down wo of the biggest names in hedge fund lore built their careers on recognizing spectacular investments others couldn’t see. Alas, sometimes even legends ﬂop. Alpha Hedge Fund Hall of Famers Bruce Kovner, head of $13 billion New York–based Caxton Associates, and Michael Steinhar d t , t he r e t ir ed hedge fund manager who returned a net 24 percent annually over 28 years, were major backers of the no w - de f unc t New York Sun. The conservative daily folded last month af ter six and a half years. Neither S teinhardt nor K ov ner w ould comment, but insiders say the paper lost a total of $80 million. The Sun’s circulation never exceeded 14,000 — a drop in the New York media bucket — so in hindsight it seems like a doomed enterprise from the get-go. Maybe that means Kovner and Steinhardt made a rare mistake, though of course that depends how one defines “mistake.” The paper gained a reputation for solid journalism, particularly in arts and culture coverage, and became a notable pro-Israel voice. But the days of a small print daily’s wielding significant ideological influence are long gone, says Arlene Notoro Morgan, an associate dean at T 14 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2008 DANIEL ACKER/BLOOMBERG NEWS Columbia University’s Journalism School; these days even big newspapers are struggling to compete with the Internet and television. It used to be that “you had to read the newspaper because you didn’t have anything else,” Morgan says. “Now you have so much, you can just channel switch. It’s diluted the impact that one news organization can have.” Impact aside, the Sun was simply not s t rong enough f i nancially to weather some of t he mos t volatile markets in history. “Among other problems that we faced was the fact that this month, not to mention this week, has been one of the worst in a century in which to be trying to raise capital,” Seth Lipsky, the Sun’s editor, told his staff in late September. But the Sun was obviously not entirely — or even mostly — about money, because supporters like Kovner and Steinhardt stayed so loyal to the paper and sank so much money into it for so long. Behavior like this seems utterly irrational, of course, and begs the question of why such famously astute and notoriously disciplined investors commit enormous amounts of money to something as dicey as newspapers. “Because they love them,” Morgan says. — Danielle Beurteaux elations between public companies and activist hedge funds have been oft marred by mutual fear, loathing and a good measure of mudslinging. But a sea change may be in the works as companies recognize the growing influence of activist funds. The final version of a long-awaited report on the topic by the Conference Board Working Group on Hedge Fund Activism urges corporations to acknowledge what activists bring to the table. Many in the hedge fund industry applaud the recommendations, particularly the emphasis on talking it out as opposed to such old-line responses as poison pills and staggered boards. Many managers point out that activist shareholders — like Nelson Peltz of Trion Group and Relational Investors’ Ralph Whitworth — are loyal long-term investors who are seeking to unlock the deep potential of large-cap stocks. “The report could result in better management and better shareholder value because it points out the value to management of assessing those places where it may be vulnerable,” says Mitchell Nichter, a partner at law ﬁrm Paul, Hastings, Janofsky & Walker in San Franciso. Kevin Dolan, CEO of La Fayette Investment Management (UK), a $3.3 billion London-based fund of funds, embraces what he calls “operational activists” — patient, longterm investors who shun publicity and avoid confrontation. Current market conditions offer great opportunities for activists who can create value by investing in high-EBITDA, large-cap stocks trading at low multiples. “You’re not going to be seeing private equity funds buying out these kinds of large-cap stocks, for the simple reason that there is no ﬁ nancing available, nor will there be any for quite some time,” Dolan says. Translation: “Operational activists will hold sway.” — R.R.

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2008

Institutional Investor's Alpha Magazine - October 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Process of Evolution The Good Guys: Israel's Champion Interview: Fast Lessons for Hard Times Cover Story: Industry Under Siege The New Hedge Fund Economics Good-Bye, Easy Money Caging the Shorts Strategies: Bottom Fishing Profile: Cult of Personalities Research Center: Alpha Awards: Eye of the Storm Alpha Bytes: Funneling the Chatter Unhedged: Commentary: Attention, Hedge Fund Shoppers

Institutional Investor's Alpha Magazine - October 2008

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