The Economist reports:
ALTHOUGH he is still stirring things up at Dell, an ailing computer-maker, Carl Icahn has found time to tilt at another tech titan. On August 13th the veteran shareholder activist revealed that he had built up a stake in Apple, though he stayed mum about exactly how many shares he had bought. Mr Icahn’s intentions, however, are crystal clear: he wants the consumer-electronics behemoth to expand plans to return some of its whopping $147 billion of cash and marketable securities to shareholders.
It's all part of an increasingly common pattern, as John Carney observes:
Almost every day there's a new story that runs like this: hedge fund manager "X" has purchased a stake in an iconic American company that he thinks will be worth more—if only the company will follow his plan. It's now a familiar part of the Wall Street landscape.
As you might expect, and as Carney kindly notes, I'm not an enthusiast:
Stephen Bainbridge, a professor at UCLA's law school, argues in a recent paper that activists may be going too far when they advocate operational changes in the way companies do business.
Hedge funds may be able to detect when dividends should be raised, assets should be sold, or acquisitions embraced or rejected. But financiers who second-guess management about the details of company operations may be over-reaching.
"[D]o we really think a hedge fund manager is systematically going to make better decisions on issues such as the size of widgets a company should make than are the company's incumbent managers or directors?" Bainbridge asks in a recent paper.
Here's how Bainbridge answered that question:
Because the hedge fund manager inevitably has less information than the incumbents and likely less relevant expertise (being a financier rather than an operational executive), his decisions on those sorts of issues are likely to be less sound than those of the incumbents. It was not a hedge fund manager who invented the iPhone, after all, but it was a hedge fund manager who ran TWA into the ground.
And that hedge fund manager was <insert drum roll here>, of course, Carl Icahn.