Activist investors rarely scare chief executives the way they used to. A decade ago, the sector was a magnet for investment dollars, after some high-profile fights generated stellar returns and spawned a flurry of copycat campaigns to shake up public companies.
The successes, however, proved hard to replicate. Boards of directors developed better tactics to fight off opportunistic activists, and investors grew tired of the industry’s expensive fees, because low-cost ETFs often delivered returns that were just as good, if not better.
Elliott Investment Management is one of the few activists that still garners the respect it used to. The Florida-based firm, founded by Republican powerbroker Paul Singer in 1977, is frequently referred to as the most-feared of its tribe. It is also often the most active. In 2021, it launched 10 public campaigns, the most of any major activist, according to Insightia, which tracks the sector.
This reputation could serve Elliott well in its new fight with Suncor Energy Inc. SU-T, one of Canada’s corporate titans. Despite some recent stock market struggles, the Calgary giant is treated as royalty, deeply respected for spearheading a push to develop the oil sands into one of the most prolific asset bases for energy production in the world.
Until now, Elliott hasn’t been very active in Canada, usually focusing instead on the United States, Britain and Europe. But it has a history of targeting large companies, including AT&T Inc. T-N, GlaxoSmithKline PLC GSK-N and Twitter Inc. TWTR-N, so Suncor’s $60-billion market value before Elliott went public with its demands is not a deterrent. Last year, the average market value of companies Elliott targeted was US$30.1-billion, according to Insightia.
Shark hunting isn’t the only thing that makes the firm stand out. Elliott also has a reputation for being ruthless, if not a little cut-throat. Two high-profile experiences in particular have shaped its reputation.
In addition to its activism, Elliott is also a traditional hedge fund that invests in credit and other assets. At one point, one of its debt investments were Argentinian bonds. This position got Elliott into a protracted fight with the Argentine government.
Elliott often did not accept the terms of Argentina’s debt restructuring deals, and it wouldn’t back down, which included taking Argentina to court in the United States. At one point, Elliott went so far as to convince a court in Ghana to detain a 348-foot Argentine navy vessel that had docked in its port, with the fund arguing it had a right to the take the ship.
More recently, in 2017, Elliott lent more than €300-million ($403-million) to Li Yonghong, an unknown Chinese businessman who was trying to buy AC Milan, a famous soccer club, from Silvio Berlusconi. The debt charged an annual interest rate of 11 per cent a year, and Elliott figured it would either get a hefty annual return, or, worst case, be able to take ownership of a storied franchise.
In 2018, only one year after purchasing the club, Mr. Li defaulted on the debt, and Elliott took control of the club. While Elliott injected another €50-million into the franchise, in all, the investment firm got control for roughly €400-million, a little more than half of the club’s sale price the prior year, according to the Financial Times.
As for its activist reputation, Elliott has been accused of flashing a six-inch-thick dossier during a meeting with directors that purportedly contained dirt on them and their families, and unearthing the old divorce records of a chief executive officer it was hoping to get fired and allegedly leaking them to the media. (Elliott has denied these allegations and declined to comment.)
Lately, however, activists of all stripes have been trying to soften the way they are portrayed. Many of their own investors are sick of bruising campaigns, especially after a number of them have resulted in major losses. Sometimes, going for the throat just isn’t worth it. In a letter to investors last month, Bill Ackman, who has endured some high-profile blow-ups, such as his campaign against Herbalife, preached agitating for change in a quieter, more co-operative way.
Elliott has been participating in this makeover in its own way, in part by expanding a private equity division that buys companies outright and allows the firm to make the changes it wants behind closed doors. Recently, Elliott and Brookfield Asset Management jointly bid $16-billion, including debt, to buy television ratings giant Nielsen.
Yet Elliott isn’t straying all that far from its activist roots. In its new fight with Suncor, the firm did not give its target a heads up or try to engage with the board privately, choosing instead to deploy the age-old activist playbook of putting out a public letter addressed to directors and suggesting selling off a non-core retail business.
This time, though, Elliott is going up against a board that knows these tactics well. Suncor chair Mike Wilson used to run Calgary’s Agrium Inc., which was targeted by Jana Partners, another well-known activist that called for selling off a non-core retail business a decade ago. Despite the pressure on him, Mr. Wilson dug in, and won, which was a rare feat at the time.
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