Hedge fund activism is on the rise.
Hedge fund activism is on the rise. Yesterday the long-running battle between US railway operator CSX Corp and two hedge funds intensified further with both sides seeking support from shareholders ahead of a vote on the composition of the company’s board.
The funds – Chris Hohn’s The Children’s Investment Fund and 3G Capital Partners – claim their plans, the latest move by the funds in a crusade to shake up the CSX board and press for operational changes, could boost CSX’s annual earnings by an extra USD2.2bn within five years.
However, executives at CSX, which in March sued the two funds for alleged violation of securities laws, have written to shareholders urging them not to vote for the slate of five directors put up by TCI and 3G for the company’s annual shareholders’ meeting on June 25.
Other ongoing hedge fund activist campaigns are led by Pardus Capital Management, which is seeking changes at several companies whose stocks it holds, notably Delta Air Lines and United Airlines’ parent UAL, and New York-based Nanes Delorme Partners, who last month told the board of directors at Vaalco Energy that the company was undervalued and that it should consider strategic alternatives, including putting itself up for sale.
Essentially, activism is about devising ways to generate greater shareholder value. Hedge fund managers who want to boost the value of an equity investment are increasingly turning to activist tactics as a way to boost their returns, and it’s a strategy that is gaining increasing traction among investors.
Most company executives loathe admitting that the activists often come up with eminently sensible ideas. But the fact remains that activism is one of the best catalysts these days to boost a company’s performance.
