Laser eye surgery company VISX will buy back shares and said first-quarter business was strong. That's good news, but the company still has to contend with the attentions of 10% owner Carl Icahn, who wants the company sold. Long-term investors may welcome the energy of activist investors, but don't put the latter's money in the bank. They're playing a different kind of game.
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The management of laser eye correction firm VISX (NYSE: EYE) grabbed some ammunition for its fight against activist investor Carl Icahn today, the company announcing that it expects to report first-quarter earnings of $0.20 or $0.21 per share, based on a 23% sequential jump in licensing revenue -- the fees it charges doctors each time they use its procedure to perform surgery. (Full results are due April 12.) That news, combined with an announcement of a new, 10 million-share stock buyback program that represents about 16% of the shares currently outstanding, helped the stock up a bit in morning trading. Now the stock is sitting right about where it was a year ago. But will it quiet the company's most outspoken critic? Carl Icahn, as he is wont to do, controls a hair under the 10% of company stock that would trigger VISX's "poison pill" shareholder defense -- a defense that would allow existing investors to purchase stock at a discount. (The company installed the plan upon learning of Icahn's intentions last summer.) Icahn's usual modus operandi in cases like this is pretty simple: Buy a multimillion-dollar stake in a company, grouse a bit, and push for a sale or other transaction. He's recently been involved with both Nabisco Holdings (eventually purchased by Philip Morris' (NYSE: MO) Kraft, a transaction driven in large part by Icahn's ownership of Nabisco Group Holdings) and General Motors (NYSE: GM), to name a high-profile few. In the case of Visx, Icahn wants the company sold to a pharmaceutical or medical device company, and plans to gun for the company's board of directors if need be: He has nominated some for election at this year's annual meeting and is asking stockholders to allow him to vote their shares rather than doing it themselves or, as is most common, allowing the current board to do so. Naturally, VISX's current board isn't real happy with the idea, or Icahn's other suggestions, which include a buyback, a new executive search, and a review of strategic alternatives: It insisted, in a Monday news release, that it's doing all of the above. Whether or not that's enough to satisfy Icahn -- who does this kind of stockholder rabble-rousing for a living -- is another matter. But more important than that is the realization that most individual investors are not miniature Icahns. He is a billionaire who can afford to make eight-figure bets on what are, in the case of potential mergers, essentially short-term events. When it looks like things aren't going to go his way, he often bows out, as he did with much of his GM stake last year. Typical investors shouldn't try to play this game. Trying to game or time mergers and other big deals is hit-or-miss at best, but Icahn at least has the sort of connections that can better educate him about the probability of things working out the way he'd like. (Another clue that Icahn is playing a different game then the rest of us: He frequently assumes control of bankrupt operations like the Sands Casino & Hotel. Individual investors should consider the stocks of bankrupt companies off-limits, to say the least.) So while the involvement of "raiders" like Icahn can certainly help a company's shares in the short term, it's certainly not enough reason to buy a company's stock. In doing so, investors can sometimes take on even more risk than the raiders. (He's admitted as much in published comments.) Still, the upside for long-term investors is that activist investors with large stakes in the companies often have the ear -- sometimes begrudgingly -- of management, and can make needed changes happen more quickly. Dave Marino-Nachison misses his old maroon Dodge Caravan. His stock holdings can be viewed online, as can the Fool's disclosure policy.
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