No love lost for hedge funds
Its difficult to reconcile to the way the Kraft Cadbury deal finally ended (the deal got done today). Not the outcome – M&A transactions like this happen all the time. But the way it happened makes me reflect if unbridled capitalism is really a good thing.
My ire is on the hedge funds – they are no different to a herd of vultures which circle over an animal that’s about to die. When there’s a whiff of a M&A transaction, the hedge funds pile in to buy the shares of the target, hoping to make a killing . This is what happened in the Alcon transaction about which I posted here. Somebody tell me how what happened in the Cadbury case is reasonable by any yardstick.
Here’s what happened. When the first whiff of a possible takeover of Cadbury was in the air, the hedge funds bought heavily into Cadbury shares. They then drummed up noise that Kraft’s bid was inadequate and it had to raise the price. They kept making this noise and were prepared to play brinksmanship. Till virtually yesterday, they kept repeating the mantra – Kraft had to bid more.
Kraft caved in. They raised their offer to an effective 850p per share, from the original 745p where they started. Once this happened, the herd turned on Cadbury’s board to accept the offer. Never mind that one of Cadbury’s largest shareholders Standard Life said that they wouldn’t support a bid lower than 900p. Never mind that many independent valuations supported a price above this figure. Never mind that Cadbury released excellent results even with this protracted takeover process was on. The noise making ability of the hedge funds is pretty large . The Board was right to be worried about lawsuits – the scoundrel’s last refuge. Cadbury’s investment bankers advised the Board to accept – they would; wouldn’t they – they don’t make any fees if the deal doesn’t happen. So ultimately the Board of Cadbury caved in.
So the hedge funds win. They are only concerned about a windfall now. Who wants to wait for the long term for value creation. Who cares about the 180 year history of a company. Who cares for the management which has created all this value. So 850 is a great price because they bought it at 750. Forget about long term potential.
I simply cannot accept that a short term raider has the same equal shareholder rights as a long term investor. As managers, we are supposed to be working for our shareholders. But I certainly don’t want to work for vultures. Governments have to intervene – if you haven’t held the shares for more than a year, you have no right to influence a M&A transaction – you have no voting rights, you have no right to sue. The fate of companies built over 180 years cannot be decided by the shark who wants to make a killing now. Its just not on.
The financial services industry has learnt nothing from the past year. Their behaviour is exactly the same. Forget about bonuses and pay which have hogged the headlines. Hedge funds have got back to behaving exactly as before. No wonder the public mood is so much against this lot. They stand next only to Osama bin Laden in public contempt. They deserve this contempt, and more.
My ire is on the hedge funds – they are no different to a herd of vultures which circle over an animal that’s about to die. When there’s a whiff of a M&A transaction, the hedge funds pile in to buy the shares of the target, hoping to make a killing . This is what happened in the Alcon transaction about which I posted here. Somebody tell me how what happened in the Cadbury case is reasonable by any yardstick.
Here’s what happened. When the first whiff of a possible takeover of Cadbury was in the air, the hedge funds bought heavily into Cadbury shares. They then drummed up noise that Kraft’s bid was inadequate and it had to raise the price. They kept making this noise and were prepared to play brinksmanship. Till virtually yesterday, they kept repeating the mantra – Kraft had to bid more.
Kraft caved in. They raised their offer to an effective 850p per share, from the original 745p where they started. Once this happened, the herd turned on Cadbury’s board to accept the offer. Never mind that one of Cadbury’s largest shareholders Standard Life said that they wouldn’t support a bid lower than 900p. Never mind that many independent valuations supported a price above this figure. Never mind that Cadbury released excellent results even with this protracted takeover process was on. The noise making ability of the hedge funds is pretty large . The Board was right to be worried about lawsuits – the scoundrel’s last refuge. Cadbury’s investment bankers advised the Board to accept – they would; wouldn’t they – they don’t make any fees if the deal doesn’t happen. So ultimately the Board of Cadbury caved in.
So the hedge funds win. They are only concerned about a windfall now. Who wants to wait for the long term for value creation. Who cares about the 180 year history of a company. Who cares for the management which has created all this value. So 850 is a great price because they bought it at 750. Forget about long term potential.
I simply cannot accept that a short term raider has the same equal shareholder rights as a long term investor. As managers, we are supposed to be working for our shareholders. But I certainly don’t want to work for vultures. Governments have to intervene – if you haven’t held the shares for more than a year, you have no right to influence a M&A transaction – you have no voting rights, you have no right to sue. The fate of companies built over 180 years cannot be decided by the shark who wants to make a killing now. Its just not on.
The financial services industry has learnt nothing from the past year. Their behaviour is exactly the same. Forget about bonuses and pay which have hogged the headlines. Hedge funds have got back to behaving exactly as before. No wonder the public mood is so much against this lot. They stand next only to Osama bin Laden in public contempt. They deserve this contempt, and more.
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