Carl Icahn is affecting the stock market in ways he might not realize. Let me explain. Icahn is an activist investor. The basic premise behind activist investing is that the shareholder takes an equity stake in a company and uses it to put pressure on its management. The objective is to get management to increase shareholder value through many possible ways (stock buybacks, increasing dividends, restructuring, cost cutting, spinoffs, etc.).
Here is the part I love. When Icahn does this, he does it PUBLICLY! He doesn’t care what ANYONE thinks about him. He will flat out tell a company that your management sucks, you have no idea how to run a company, you have done nothing for the shareholders, so get off your ass and do something or else I’ll influence the board to fire you! Maybe it’s not THAT dramatic, but that’s the impression I get.
A perfect example of this is when he took an activist position in $AAPL. I can’t think of anything more awesome than going after the biggest beast out there and trying to stir the pot. Personally, I thought there was no way he could influence a behemoth like Apple, but somehow, he helped orchestrate an increased share buyback and an increased dividend. Of course, the stock is doing well because iPhone sales are through the roof, but Icahn’s influence has certainly helped revitalize the stock.
I think he’s influencing the market in two ways: 1) He’s inspired a new group of activist investors such as Dan Loeb, Bill Ackman, and funds such as CalPERS. 2) MORE IMPORTANTLY: I think many companies are getting of their asses and starting to take action because they fear these activist investors. Recently, I have noticed an uptick in stock buybacks, acquisitions, and restructuring. What’s especially interesting to me is that most of these companies are Food/Staples related such as $HSH $MDLZ $KRFT $CL and $WAG. Again, companies with tons of cash that are taking more action to increase shareholder value.
The big question is: Are activist investors good for the market? I absolutely say yes! Why? Because too many boards are complacent. Their companies make tons of cash and for years they have been happy sitting on it. Now, I think some of these boards are saying to themselves, we should probably start doing something BEFORE someone comes in, calls us out publicly, and forces us to do it.
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