The Barbarians Are Back.
'Remember those rapacious financiers from the 1980s who took over underleveraged companies and stripped them clean of assets before selling them off? They're back in a somewhat different guise, politely rebranded as "activist investors," and this time around they are targeting the world's richest and most powerful firms. The battle between Apple and private-equity titan David Einhorn is probably the best evidence of this comeback. Einhorn brought a lawsuit, recently dropped, asking Apple to part with some of its $137 billion of spare cash in the form of shares yielding a rich 4% dividend. Apple, one of the world's most profitable firms, said, No, thank you, most likely believing that it could do better things with its money than Einhorn could (a sentiment with which I completely agree).
The battles brewing between corporations and financial capitalists are just starting to heat up. From hedge funder Bill Ackman's war on controversial nutrition firm Herbalife to infamous '80s raider Carl Icahn's recent opposition to Dell's plan to go private, Wall Street opportunists are pulling out their big guns after holding fire for the past several years.
These "activists" claim to be concerned about good corporate governance. But this is really a fight over the $2 trillion in spare cash sitting on U.S. corporate balance sheets and how it should get spent. . .
Nobody involved in these shareholder battles has completely selfless motives. Einhorn may be less worried about shareholder value than his personal balance sheet, since he's been long on Apple while its share price has declined 40% since its peak last September. But the point isn't who has more to gain, corporations or financiers; it's that we all have something to lose. The barbarians at the gate have unwittingly shed light on some major problems with our system of shareholder capitalism. It's afflicted by short-termism of all kinds, and we're headed into a growing debate about how to reform it. Many smart folks are calling for not only corporate-pay and tax reform but also a more Germanic-style stakeholder capitalism that can spread the benefits of a company's growth more evenly among labor, management and shareholders. (All those groups are represented on the boards of German companies.) If that's the result, there may be an upside, beyond share price, to all this "activism."'
http://www.time.com/time/magazine/article/0,9171,2138566,00.html#ixzz2Ql0kybug