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ted to found
later 2015 Dow Jones & Company, Inc. All Rights Reserved. ingMr.Sq
were Corp. Mr. Ha
ners, w
Hes aor $13 date,5e
ckenskens a board
$10 bil
rview. Harris


can cut
later g for Mr.
By David derided as corporateCorp.
to ainvestors such as Nelson Peltz have become accepted voices in the boardroom
ces, In
ners, 2w
or $13nd Ex- liam
When activist investor Nelson
kens aPeltz
ought Capita
$10 bil
demanded board seats at H.J. Heinz Co. y1982,in
out- launch
2006, both the company and its ompa- wsuit
d en-
headquar- Canadi
ters city were indignant. reen-toedget on When
can cut
ringe. the
1%. for
The Pittsburgh newspaper ranabove editorials
venue SimN
urging support for the hometown g for
yf 50%
Corp. s
Heinz gave employees bottles of its to signa-
l, andto found
ture ketchup with custom labels urging Ex- laws Walgre


them to vote against Mr. Peltzs nominees. were
anies Rosens
We thought, Gosh, we dont need y out- Hes
short- a gave
of eh
help, recalls Art Winkleblack,dthen en- ckens
the seats,
companys chief financial officer. ed onrview.
a bull public
prac- 1%.
This June, nearly a decade later,arget- Mr.
venue Sim
lin Tem
Peltzs Trian Fund Management LP got
f 50% anof
out Comp
Corp. s
entirely different reception afterl,buying
and be-
ts a
later Mr.
7% stake in Pentair PLC, a Minnesota lawsmaker
ained ners,

of pumps and valves. Pentair Chief Execu-
anies or $13
oom- than
tive Randall Hogan spoke several times $10
chain bilW
of just
Trian co-founder Ed Garden about romi-
mium. presen
strategies and promptly moved to ompa- eral-ste
year, it
a bull Mr.
add some
reen- can cut
Garden to its board. prac- shareh


above balance
given t
You never know what you dont know, g for Barry Rosenstein, top, found few investors interested in activism when he launched Jana Partners lin Tem
ter me
Mr. Hogan says of his willingness out of Corp.
to listen totoa in 2001. Below, investor T. Boone Pickens, left, greeted Gulf Oil CEO James Lee in 1983. Capita
the activists. ts be-ndearly
Ex- andTria
After decades of being treated as ained
boorish endowments investing in them as other performance or pursuit of the strategy, he seats, w
gate-crashers, activist investors oom- y out- funds, says Rob Kindler, head of mergers
are infil- noted in an interview.
gave h
trating the boardrooms of large vestor d en-
compa- chain W
and acquisitions at Morgan Stanley. The This year, returns for activist hedge
nies like never before. This yearromi- ed on
activists New Y
ringe. demonization of activists, when really what funds averaged 3.4% through November, year, it
launched more campaigns in the U.S. venue 360 they are doing is providing returns to the beating the hedge-fund average of 0.3% and Sim
through Dec. 17 than any other yearf 50% on same pension and endowment plans, just the S&P 500s 3% total return, according to Corp.
record, according to FactSet. They secured Barryseems
l, and overdone.
Rosenstein, top, found few investors interested in industry
when hegroup HFR.Jana
launched OverPartners
the past ueAct
ter me
corporate board seats in 127 Corp. of those in 2001.Several
laws factors T.
Below, investor contributed to this
Boone Pickens, left,shift,
Oil CEOactivist
Lee inhave
1983.returned an partne


campaigns, blowing past last years record
early anies according to corporate executives, activists, annual average of 8.2%, compared with the though
and de
of 107. Activists now manage more short- than bankers and lawyers. The financial crisis average hedge funds 3.2% return, HFR says. of just
$120 billion in investor capital, doublemium.
what fanned dissatisfaction with corporate execu- The debate about whether activism is ValueA
a bull some
they had just three years ago, according to tives and brought low interest rates that good for U.S. companies over the long term
prac- shareh
researcher HFR. arget- helped activists thrive. Activists got more hasnt gone away, most recently popping lin Tem
The industry has come a long way since out of sophisticated about analyzing target compa- up in the presidential campaign of Hillary Capita
the 1980s, when Carl Icahn, Saul Stein- ts be- nies and built alliances with other big share- Clinton. She has decried hit-and-run activ- Tria
berg, T. Boone Pickens and other mavericks ained holders, including mutual funds. And broad ists, while also saying some activists help seats, w
would amass large stakes in companies oom- and shifts in corporate governance gave more hold managers accountable. panies
demand a sale of the entire company. vestorThey power to all shareholders, including activ- Mr. Lipton has voiced similar complaints. chain W
were called corporate raiders and green- romi- ists. Much of what is wrong with America today New Y
year, it
mailers and were widely criticized. M&A lawyer Martin Lipton, who for years slow growth, widespread corporate scan-
These days activists, while not exactly has represented companies facing battles dals, inadequate investment in long-term given t
welcomed in corporate boardrooms, are Barry for board seats, this
Rosenstein, top, year
foundcalled on clients
few investors to projects,
interested lowwhen
in activism wageshethat haveJana
launched not kept pace
Partners ter me
rarely treated as ill-mannered outsiders. Corp. in consider settling
2001. Below, with some
investor activists.
T. Boone Pickens,There with
left, greeted inflation,
Gulf Oil CEO wide
Jamesswings in the economy
Lee in 1983. Th
These activist funds are just a different early is no timely way anymore for a company accompanied by uncertain employment and de
asset class who have the same pensions and to be slow about responding to a decline in and rising inequality is attributable to

(over p lease)

The Publisher s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization.
Herbalife Ltd., then a lesser- takers. They hoarded cash and
 known nutritional-shake maker, avoided big spending. When
       and York Group Inc., a casket interest rates dropped, they
   maker. borrowed money not for expan-
Mr. Rosenstein and his fellow sion, but to buy back stock and

   activists hoped to follow a increase dividends exactly


path to respectability blazed what some activists were
by private-equity funds, who pushing for. Critics of such
had largely shed their image moves say companies would
as buyout barbarians and be better off using capital on
transformed themselves into long-term investments such
respected, publicly traded as infrastructure, research and
institutions. To do that, activ- employees, but activists say
ists needed to persuade others, managers have proven poor

including potential allies at spenders and shareholders can
mutual funds, they were inter- handle the money better.
ested in building value at target At the same time, changes
  companies, not just making a in corporate governance were
quick buck. making it easier for activists to
It was during this period that win board seats. Between 2011
Mr. Peltz launched his proxy to 2014, a group at Harvard

fight at Heinz. When company University led by professor
   shareholders met to elect the Lucian Bebchuk campaigned to


  board, the tension was thick. get more than 100 major compa-
Mutual fund Capital Research & nies to put their entire boards
short-termism and attacks, and fringe. In 1987, the Internal Management Co., a large share- up for annual election, instead
threats of attacks, by activist Revenue Service introduced holder, voted for some Trian of staggering directors in multi-
a tax of 50% on profits from nominees, stunning Heinz exec- year terms.
hedge funds, he wrote recently.
utives and helping put Mr. Peltz Annual elections give activ-
Activist were a different greenmail, and several states
and an ally on the board. ists leverage because boards
breed back in the late 1970s and passed laws making it hard for
After winning the vote, Trian can be overturned in one fell
1980s. They made midnight companies to buy back stakes
didnt push a quick sale, but swoop rather than over a series
raids on stocks, building large, from short-term investors at a
stayed around. Board members of years. In 2000, 300 of the S&P
often controlling, stakes. Then premium.
say Trian helped focus the 500 companies had staggered
they pushed companies to By the 1990s, when a bull
company on cutting certain boards. This year, only 49 do.
sell themselves to the highest market took hold, those
costs and increased spending Perhaps the most important
bidder or to the raider himself, practices had largely faded. on marketing, and sped up the change, according to both activ-
or to buy back their positions at Targeting big companies companys timetable for moves ists and their detractors, is that
above-market prices, a practice was out of the reach for most that improved profit margins. activists got more sophisticated
known as greenmail. activists because their funds They didnt come in with about analyzing how to improve
When Mr. Pickens bought remained small. And with a sledgehammer saying you operations at target compa-
stock in Gulf Oil Corp. in 1982, stocks booming, there was scant have to do it this way, says Mr. nies. They recruited executives
he was greeted by a lawsuit and investor demand for taking on Winkleblack, then CFO. with experience in the relevant
spent months trying to get a prominent CEOs. It was so seminal because it industries to work alongside
meeting with the Chief Execu- was a huge company to go after them on campaigns.
tive James Lee. Mr. Pickens Enron questions
at that time, says Chris Young, In 2012, for example, William
contended the company was The collapse of Enron Corp. an activism-defense banker Ackmans Pershing Square
mismanaged, and he wanted to and WorldCom Inc. in the early at Credit Suisse Group AG. It C a p i t a l M a n a ge m e n t L P
take control. 2000s led more shareholders was operational in nature, and launched a proxy fight against
Other shareholders were to question whether managers you got mainstream, long-only Canadian Pacific Railway Ltd.
suspicious. One said Hes a were acting in their best inter- investor support. That, I think, When Pershing Square called
fast-buck artist, Mr. Pickens ests. It was around that time started opening peoples minds the former boss of rival Cana-
recalled in a recent interview. I that todays activists started to the art of the possible. dian National Railway Co.,
said, Who in the hell wants to be forming funds, including what In 2013, Heinz was sold to Hunter Harrison, for advice,
a slow-buck artist? would become Starboard Value Brazilian private-equity firm 3G it found a willing partner.
The saga ended two years Fund and Barry Rosensteins Capital Partners LP and Warren Pershing Square campaigned
later when the company later Jana Partners LLC. Buffetts Berkshire Hathaway with Mr. Harrison as its CEO
known as Chevron Corp. Mr. Rosenstein, who once Inc. William Johnson, then candidate, eventually winning
swooped in to buy Gulf for $13 worked for corporate raider Heinzs CEO, now is an adviser seven board seats and putting
billion, delivering Mr. Pickens a Asher Edelman, launched his to Trian, and Mr. Winkleblack Mr. Harrison in charge.
substantial profit. fund in 2001 but found few was a Trian board nominee at
In 1984 alone, public compa- investors interested in targeting DuPont Co. Company plans
nies paid $3.5 billion in green- companies and agitating for The financial crisis that began Mr. Rosensteins Jana Part-
mail, with payments above change. in 2008 was a setback for many ners, which now employs more
market price accounting for One person I pitched said activists, who saw their funds than 50 and runs more than $10
$600 million, according to a This is not a strategy, Mr. lose billions. But ultimately it billion in assets, typically pres-
study by the Securities and Rosenstein recalls. Nobody was created fertile conditions for the ents companies with several-
Exchange Commission. doing it. current activism boom. step plans about how they can
S u c h ta c t i c s ge n e ra l l y He raised about $20 million, In the wake of the crisis, many cut costs, restructure their
outraged other investors and opened shop with just three corporate executives took a balance sheets, shed assets and
ensured that raiders remained employees and started investing more-conservative approach, change strategy.
on the investment worlds in small companies, including not wanting to be seen as risk- Last year, drugstore chain
Walgreen Co. agreed to put Mr. ranging from fast-food chain of activists. Chief executives its finance arm, Mr. Peltz, who
Rosenstein on its board and Wendys Co. to Bank of New appointed this year by McDon- wasnt an investor, called to
gave him a say in two other York Mellon Corp. This year, it alds Corp. and United Technol- congratulate Mr. Immelt.
seats, all without a threat of a took a stake in food distributor ogies Corp. have called them- Id love to have you in the
public fight and a stake of only Sysco Corp. and was given two selves internal activists. stock, Mr. Immelt told Mr.
1%. seats only a week after meeting Were the activists at UTC, Peltz.
Similarly, in 2013, Micro- management. United Technologies CEO As Trian did due diligence, it
soft Corp. said it would add a They arent on a search-and- Gregory Hayes said in October. urged Mr. Immelt and his team
ValueAct Capital Management destroy mission, says Wesley If an activist wants to come in to eliminate more of GE Capital
LP partner to its board, even von Schack, the lead director of and make a suggestion that we than planned and to tap the debt
though ValueAct held a stake Bank of New York Mellon. They do it, we can say, Been there, markets for buybacks. GE execu-
of just 1%. Behind the scenes, come in and speak to the right done that. tives felt the activist was in the
ValueAct had support from issues. General Electric Co. Chief right ballpark. Trian invested
some of Microsofts biggest Activist thinking now appears Executive Jeffrey Immelt has $2.5 billion, its biggest invest-
shareholders, including Franklin to be influencing even execu- gone so far as to invite one ment ever.
Templeton Investments and tives who havent been targeted. activist to get involved in his A month after the stake was
Capital Research. Executives now routinely talk company. disclosed, GEs stock crossed
Trian has gained board seats, about the return on every When GE announced in April $30 a share for the first time
without a fight, at companies dollar spent a frequent focus that it would shed GE Capital, since the financial crisis.