Photo by: Benno Hanson.
I have a special place in my heart for the activist investor. The media often give them a bad rap, but activists play an important role in making big, quick changes in America's biggest companies.
So, with that said, I wanted to look back at the three best activist campaigns this year to highlight how activist investors can work for the good of all shareholders.
1. A fruity concoction
At the top of this year's list is Carl Icahn's stab at Apple (AAPL 0.52%). By now, every investor knows that Apple has a boatload of cash -- some $40.5 billion in cash plus more than $106 billion of other investments.
Growing corporate cash hoards are a real problem for investors across the board. Too much cash threatens long-run stock returns, since cash and debt investments simply do not provide the same return as equities -- ownership of a business.
Most laudable is Icahn's demand for speed. Apple has a buyback and dividend plan in place, but Icahn wanted it done immediately. He suggested Apple borrow against its cash and investments held overseas to make big buybacks spanning a single year.
By and large, the debate is mostly over. Apple will return as much as $100 billion to shareholders by 2015, with the bulk coming in the form of share repurchases. David Einhorn deserves a mention, too, for his suit against Apple, and subsequent plan for Apple preferred stock, which kicked off a universal discussion about the iPhone maker's massive cash stash.
2. An automated return of capital
Remember Redbox? While Outerwall (OUTR), formerly Coinstar, isn't necessarily a stock that gets widespread attention, it makes frequent appearances in value investing and activist circles.
Outerwall underwent a name change to enact a new strategy: Make every product under the sun available in automated kiosks, from coffee to sandwiches. Unfortunately, few of its new initiatives could stand up to its Redbox and Coinstar machines in profitability.
That's when Jana Partners entered the fray. The activist group acquired a 13.5% stake, pushing Outerwall to return cash to shareholders instead of investing in new, mostly unproven, vending businesses. The company has since approved a $100 million buyback, tossed its new ventures out the window, and had its president "step down." Not to mention, shares have surged since Jana announced its position.
What's most important here is that an outside activist group was capable of ending a new ventures program that existed mostly as a jobs program for management.
Redbox won't last forever -- DVDs, BluRay disks, and physical media are dying a slow death. Outerwall had two choices: enjoy the money while it lasts, or throw cash at new attempts to recreate Redbox's success. Jana said "no go" to new concepts; shareholders should take the money and run.
3. A political mess
Bruce Berkowitz was successful in bringing AIG back to private hands, but a new effort to privatize Fannie Mae (FNMA -1.01%) and Freddie Mac (FMCC -1.45%) may be his biggest campaign ever.
The plan had to be on this list for the sheer complexity and difficulty of actually getting this deal done. Berkowitz will have to convince the government to give up a cash cow -- two companies that have given the government more than $100 billion in 2013 alone.
I still think this deal is a long shot, and so does the rest of the market. Fannie Mae and Freddie Mac preferred stock is essentially priced as if this is a 5-to-1 event. These are long odds, indeed.
And it won't be easy for political reasons. Lawmakers have little desire to give up deficit-busting, profitable mortgage companies. The president has spoken negatively about giving Fannie Mae and Freddie Mac to shareholders. And Congress routinely bickers back and forth about who exactly should insure America's trillion-dollar mortgage industry.
If Berkowitz strikes gold in Fannie Mae and Freddie Mac, a future Foolish article from the year 2100 should name him activist of the century.
