He talks about how many of these companies are run by fraternity presidents and their frat brothers. He calls it anti-Darwinian. You have this likable, but dumb, frat president coming in and becoming CEO. He theorizes that people who float to the top in companies are those who pose no threat and take no risks. So you have the dumb frat president will in turn appoint his frat brother, who subsequently is dumber than him and rose in ranks because he poses no threat to anyone, as his successor, and so on.
He seems frustrated that many of these companies have no accountability, they essentially can do whatever they want. And many times, the smartest people don't float to the top as they should.
So I see Carl Icahn coming in and giving these guys a hard time and can't help but think it's a good thing. Good shake em up a bit.
But are activist investors like Carl Icahn actually a good thing? I mean it's great that they introduce a bit of corporate democracy, but does he actually improve the companies he takes a large position in?
This is an interesting comment, but Icahn's recent actions (last three to four years that I am familiar with) are driven by nothing more than the motive for short-term profit.
The process proceeds along the following lines:
1. Acquire a stake of more than 5%, which requires a public filing with the SEC. This is very key as now the public has a verifiable way of knowing Icahn has a stake.
2. Write a letter to the board and/or management demanding changes to the structure of the company or use of its large cash pile(if applicable). This usually takes the form of a spin-off or buyback/dividend proposal. (Buybacks are more favorable these days due to tax considerations.)
3. The stock price increases at least 10% after it is announced Icahn has taken a stake. Icahn can sell here and take his profits home; 10% annualized is a very large gain.
3. Management predictably scoffs at Icahn's demands or arranges a show for shareholders in the form of a one-on-one meeting with the CEO or something along these lines. Nothing tangible happens.
4. Icahn sometimes is able to pressure firm management/board into buybacks or dividends, which only adds to Icahn's paper profits (see 3). This is usually done through the very real threat of going directly to the shareholders with a proxy to elect new board members. Even if this is unsuccessful Icahn still has achieved 3.
This is known as the 'Icahn tax'. Due to name recognition and a strong track record Icahn is able to exert pressure on firms for a quick and easy buck. Nothing more.
I guess that would depend on your definition of improve. He is really most interested in 'improving' the value of his holding in the company so he can make a tidy profit for himself and his investors. I'm pretty sure he couldn't care less if the target company really 'improved' after he has liquidated his position.
Edit: Also, one of the big things a lot of activist investors try to force companies to do is issue a larger dividend (or just issue one if the haven't) or buy back stock. These things are good for the shareholders not necessarily the company. It's important to remember that Icahn is a shareholder and is interested in taking care of shareholders not companies.
Icahn made his bones as an ur-corporate raiders, systematically buying companies, stripping them of assets, and then using the proceeds to pay off his own debt. Ever see Wall Street? Icahn's Gordon Gekko on steroids.
The thing is, he's not exactly wrong about CEOs, but in my experience the absolute worst ones come out of private equity -- in other words, from within Icahn's world. These are guys who generally became "turnaround CEOs" of large companies in their 30s (or even 20s), and never grasped the idea that there's a difference between the architect and the wrecking ball. They're absolute disasters when they try to actually run a company, because all they know how to do is kill dogs and milk cows.
Icahn's "activism" is broadly similar, robbing from companies' long-term plans to boost short-term investor profits. He also likes to lay about with the axe handle; his accusations of eBay board malfeasance exist at the intersection of ignorance and ambition.
Case in point: his Skype accusations. It's not like Skype was overperforming when eBay sold it off; eBay had failed to make use of the company's tech, and the sale let them keep about 35% of the value in the company while letting someone else run it. If I recall, they bought the company for about $3b, sold 65% off for a hair under $2b, and then got $2.5b from the MSFT purchase. Icahn seems to think that MSFT's valuation indicated that eBay could have sold that turkey for more, but that seems unlikely -- when MSFT bought it, Skype had put its IPO on indefinite hold, and no one else even put in a bid, which indicates that if anyone should be furious, it's Redmond's own shareholders.
I hung out with a bunch of Verizon mobile executives around 2006-2007. You have never seen so many morons working at one place. They were all supremely frattish (is that a word)? Far as I could tell, their main skillset was drinking and playing politics well.
I would try to explain to them how it was important to make Verizon phones and their certification process more developer friendly, and their eyes would literally glaze over as they diverted the conversation back to sports and drinks.
I left that industry, but I got the distinct impression that Verizon's team did not promote based on technical IQ, competence, or industry-savvy. And these guys were all VERY well paid. Nice late-model Beemers. Nice suits. Contribution to the company ... nil, far as I could see.
A research paper by four academics from different universities and published by the Federal Reserve in 2006 found no evidence that hedge funds destroyed value for the companies or were short-term focused.[1]
I have not gone through the whole paper myself, but it was noted in one of the books I read recently (I forget which one specifically mentioned it, I think John Bogle's "Enough").
I have seen just about every negative Carl espouses in both public and private companies. I have also had relationships with government agencies at all levels--a variety of local, regional and national governments. Government entities are almost always more appropriately organized, better documented, more fiscally responsible (etc.) than commercial entities.
It's surprising that, in my experience, corporations are administered with a greater degree of freedom, more inattention-to-detail and a greater degree of laxity in operations than government agencies. I have heard "Good enough for government work" and other government-related jabs during conversations and cocktail party exchanges countless times. But, my experience is that industry as a whole is not as well organized and has much less oversight than most government entities.
I believe that the empirical evidence supports that these guys do improve shareholder returns. It's not altruistic, they're doing it for their own position too, and they don't really care what happens after they leave.
There is definitely something to be said for execs protecting their position rather than their company, especially when they are paid subjectively rather than corporate performance. (Or if they take corporate performance as a given)
This is the poison that runs deep into most tech companies as they grow larger and attract various MBA's with amazing pedigree to become all sorts of managers. Sooner or later, you start having stack ranking.
"The billionaire investor has been trying to get the online marketplace for months to spin off its PayPal platform from its Internet retail business."
The longer eBay refuses, the more obnoxious and louder Icahn will get. He will say anything he has to about eBay to try to force them to do what he wants them to. That's his M.O. in dealing with boards. He's an actor that puts on an overly dramatic show, trying to lure other shareholders to his position (and it helps get media attention).
This is not about whether eBay actually is the worst-run company ever (talk about dramatic), this is about trying to force eBay to spin off PayPal. Icahn believes that will unlock value for him, after which he'll sell out of eBay / PayPal at a profit and never look back. This fake concern about how eBay is run, will magically disappear from his list of priorities (ie he's nothing but a shark, and his post-sale behavior every-single-time proves that).
Unlike Warren Buffet, Carl Icahn only buys into companies he thinks are run poorly. Usually he is able to push the company around to make a profit. He also thought Apple was pretty poorly run but he gave up[1] trying to convince others of that.
It's not true that he buys "poorly" run companies. He buys companies where he thinks a simple change could make a big short-term profit for him, and then he lobbies for that profit.
In Apple's case, Apple looked really smart in 2008 for having money in the bank when there was a cash crunch in money market funds and people had trouble getting short-term operating funds. They look smart when they use their funds to lock up a bunch of Flash Memory for their devices rather than buying as they need at higher prices.
But Icahn didn't care about the long term advantages of the bank account to Apple. He just cared about trying to squeeze some of it out in the short term.
I can't remember the last time I bought or sold something on eBay. For any specific thing there is always some channel which is better, and that's the problem.
As for PayPal let's just say I lived through the age of PCI Compliance when PayPal was the most common option if you needed to take credit cards for a small business and that experience will take a long time to live down.
Andreesan seems to have a credible defense, but Ebay's excusal of Scott Cook (who is being investigated by the DOJ for antitrust action in a non-poaching agreement with his company Intuit) seems pretty damning.
Nowadays Ebay is still the place to buy and sell specialty items, which will always be a multi-billion dollar market, but they've lost their position as the marketplace of the internet.
If I were Ebay I'd also worry that thanks to Stripe it's quickly becoming much easier to become the marketplace for a given category, and beat Ebay via specialization.
In Europe, it’s mainly national champions that all seem to belong to the Schibsted group, a norwegian (formerly press-centered) conglomerate. A handful also belong to Rakuten, a Japanese conglomerate.
>The billionaire investor has been trying to get the online marketplace for months to spin off its PayPal platform from its Internet retail business.
The poor billionaire is used to getting his way and now he is pouting and ranting... Sniff.
I know two accountants that used to work for Ebay. By what they told me it is not poorly run at all. Not in any capacity. What single shred of evidence is there that EBay is the "worst-run" company he has ever seen? or even that they are tun badly at all?
If it were the worst run company he had ever seen... how are they still in business? They should be hemorrhaging money and laying off employees. You'd think that corruption, scandal and theft would be rampant for such a poorly run company. Their servers would be down all the time, they would get hacked constantly and erase their data by accident without having backups. Their web IU would be unusable, their site would be full of bugs, they would be constantly being audited by the IRS, They would be in the business news daily for their constant blunders.
[+] [-] debt|12 years ago|reply
He talks about how many of these companies are run by fraternity presidents and their frat brothers. He calls it anti-Darwinian. You have this likable, but dumb, frat president coming in and becoming CEO. He theorizes that people who float to the top in companies are those who pose no threat and take no risks. So you have the dumb frat president will in turn appoint his frat brother, who subsequently is dumber than him and rose in ranks because he poses no threat to anyone, as his successor, and so on.
He seems frustrated that many of these companies have no accountability, they essentially can do whatever they want. And many times, the smartest people don't float to the top as they should.
So I see Carl Icahn coming in and giving these guys a hard time and can't help but think it's a good thing. Good shake em up a bit.
But are activist investors like Carl Icahn actually a good thing? I mean it's great that they introduce a bit of corporate democracy, but does he actually improve the companies he takes a large position in?
[+] [-] mcnees287|12 years ago|reply
The process proceeds along the following lines:
1. Acquire a stake of more than 5%, which requires a public filing with the SEC. This is very key as now the public has a verifiable way of knowing Icahn has a stake.
2. Write a letter to the board and/or management demanding changes to the structure of the company or use of its large cash pile(if applicable). This usually takes the form of a spin-off or buyback/dividend proposal. (Buybacks are more favorable these days due to tax considerations.)
3. The stock price increases at least 10% after it is announced Icahn has taken a stake. Icahn can sell here and take his profits home; 10% annualized is a very large gain.
3. Management predictably scoffs at Icahn's demands or arranges a show for shareholders in the form of a one-on-one meeting with the CEO or something along these lines. Nothing tangible happens.
4. Icahn sometimes is able to pressure firm management/board into buybacks or dividends, which only adds to Icahn's paper profits (see 3). This is usually done through the very real threat of going directly to the shareholders with a proxy to elect new board members. Even if this is unsuccessful Icahn still has achieved 3.
This is known as the 'Icahn tax'. Due to name recognition and a strong track record Icahn is able to exert pressure on firms for a quick and easy buck. Nothing more.
[+] [-] dopamean|12 years ago|reply
Edit: Also, one of the big things a lot of activist investors try to force companies to do is issue a larger dividend (or just issue one if the haven't) or buy back stock. These things are good for the shareholders not necessarily the company. It's important to remember that Icahn is a shareholder and is interested in taking care of shareholders not companies.
[+] [-] HillRat|12 years ago|reply
The thing is, he's not exactly wrong about CEOs, but in my experience the absolute worst ones come out of private equity -- in other words, from within Icahn's world. These are guys who generally became "turnaround CEOs" of large companies in their 30s (or even 20s), and never grasped the idea that there's a difference between the architect and the wrecking ball. They're absolute disasters when they try to actually run a company, because all they know how to do is kill dogs and milk cows.
Icahn's "activism" is broadly similar, robbing from companies' long-term plans to boost short-term investor profits. He also likes to lay about with the axe handle; his accusations of eBay board malfeasance exist at the intersection of ignorance and ambition.
Case in point: his Skype accusations. It's not like Skype was overperforming when eBay sold it off; eBay had failed to make use of the company's tech, and the sale let them keep about 35% of the value in the company while letting someone else run it. If I recall, they bought the company for about $3b, sold 65% off for a hair under $2b, and then got $2.5b from the MSFT purchase. Icahn seems to think that MSFT's valuation indicated that eBay could have sold that turkey for more, but that seems unlikely -- when MSFT bought it, Skype had put its IPO on indefinite hold, and no one else even put in a bid, which indicates that if anyone should be furious, it's Redmond's own shareholders.
[+] [-] TheMagicHorsey|12 years ago|reply
I hung out with a bunch of Verizon mobile executives around 2006-2007. You have never seen so many morons working at one place. They were all supremely frattish (is that a word)? Far as I could tell, their main skillset was drinking and playing politics well.
I would try to explain to them how it was important to make Verizon phones and their certification process more developer friendly, and their eyes would literally glaze over as they diverted the conversation back to sports and drinks.
I left that industry, but I got the distinct impression that Verizon's team did not promote based on technical IQ, competence, or industry-savvy. And these guys were all VERY well paid. Nice late-model Beemers. Nice suits. Contribution to the company ... nil, far as I could see.
[+] [-] loganfrederick|12 years ago|reply
I have not gone through the whole paper myself, but it was noted in one of the books I read recently (I forget which one specifically mentioned it, I think John Bogle's "Enough").
[1] http://www.fdic.gov/bank/analytical/CFR/2006/oct/hedge_fund....
[+] [-] nly|12 years ago|reply
"I can't remember if the car left first, or the girl left first".
http://tunesviewer.sourceforge.net/
[+] [-] Avitas|12 years ago|reply
It's surprising that, in my experience, corporations are administered with a greater degree of freedom, more inattention-to-detail and a greater degree of laxity in operations than government agencies. I have heard "Good enough for government work" and other government-related jabs during conversations and cocktail party exchanges countless times. But, my experience is that industry as a whole is not as well organized and has much less oversight than most government entities.
[+] [-] mathattack|12 years ago|reply
There is definitely something to be said for execs protecting their position rather than their company, especially when they are paid subjectively rather than corporate performance. (Or if they take corporate performance as a given)
Here is the case against activists having a positive impact (which I disagree with, but share for the sake of being balanced): http://blogs.wsj.com/riskandcompliance/2013/09/30/lipton-tak...
Here is a paper that I agree with that highlights the persistent positive impact of activists: http://econ.as.nyu.edu/docs/IO/30891/AlonBrav.pdf
[+] [-] seivan|12 years ago|reply
[+] [-] adventured|12 years ago|reply
"The billionaire investor has been trying to get the online marketplace for months to spin off its PayPal platform from its Internet retail business."
The longer eBay refuses, the more obnoxious and louder Icahn will get. He will say anything he has to about eBay to try to force them to do what he wants them to. That's his M.O. in dealing with boards. He's an actor that puts on an overly dramatic show, trying to lure other shareholders to his position (and it helps get media attention).
This is not about whether eBay actually is the worst-run company ever (talk about dramatic), this is about trying to force eBay to spin off PayPal. Icahn believes that will unlock value for him, after which he'll sell out of eBay / PayPal at a profit and never look back. This fake concern about how eBay is run, will magically disappear from his list of priorities (ie he's nothing but a shark, and his post-sale behavior every-single-time proves that).
[+] [-] jcampbell1|12 years ago|reply
That looks really bad no matter how you spin it.
[+] [-] ChuckMcM|12 years ago|reply
[1] http://www.forbes.com/sites/genemarcial/2014/02/14/whats-up-...
[1b] http://www.reuters.com/article/2014/02/10/us-apple-icahn-idU...
[1c] http://www.foxbusiness.com/investing/2014/02/11/icahn-apple-...
[+] [-] cjensen|12 years ago|reply
In Apple's case, Apple looked really smart in 2008 for having money in the bank when there was a cash crunch in money market funds and people had trouble getting short-term operating funds. They look smart when they use their funds to lock up a bunch of Flash Memory for their devices rather than buying as they need at higher prices.
But Icahn didn't care about the long term advantages of the bank account to Apple. He just cared about trying to squeeze some of it out in the short term.
[+] [-] pgrote|12 years ago|reply
He bled TWA dry:
http://en.wikipedia.org/wiki/Trans_World_Airlines#1990s
[+] [-] PaulHoule|12 years ago|reply
As for PayPal let's just say I lived through the age of PCI Compliance when PayPal was the most common option if you needed to take credit cards for a small business and that experience will take a long time to live down.
[+] [-] cwal37|12 years ago|reply
However, my girlfriend buys a large quantity of good from eBay. These purchases seem to fall into two categories.
1. Clothing. In particular, very cheap dresses and clothes that are out of stock and discontinued on the brand's website.
2. Craft goods. Leather to make purses/wallets and scrap kimono silk are two examples that spring to mind immediately.
[+] [-] ROFISH|12 years ago|reply
[+] [-] Locke1689|12 years ago|reply
[+] [-] ap22213|12 years ago|reply
[+] [-] showerst|12 years ago|reply
Nowadays Ebay is still the place to buy and sell specialty items, which will always be a multi-billion dollar market, but they've lost their position as the marketplace of the internet.
If I were Ebay I'd also worry that thanks to Stripe it's quickly becoming much easier to become the marketplace for a given category, and beat Ebay via specialization.
[+] [-] bertil|12 years ago|reply
[+] [-] gesman|12 years ago|reply
[+] [-] NextUserName|12 years ago|reply
The poor billionaire is used to getting his way and now he is pouting and ranting... Sniff.
I know two accountants that used to work for Ebay. By what they told me it is not poorly run at all. Not in any capacity. What single shred of evidence is there that EBay is the "worst-run" company he has ever seen? or even that they are tun badly at all?
If it were the worst run company he had ever seen... how are they still in business? They should be hemorrhaging money and laying off employees. You'd think that corruption, scandal and theft would be rampant for such a poorly run company. Their servers would be down all the time, they would get hacked constantly and erase their data by accident without having backups. Their web IU would be unusable, their site would be full of bugs, they would be constantly being audited by the IRS, They would be in the business news daily for their constant blunders.
This reeks of pouting and sour grapes.