Freesteel Blog » Drugged up activists seek thrills to spill with Autodesk

Drugged up activists seek thrills to spill with Autodesk

Wednesday, November 11th, 2015 at 4:29 pm Written by:

The original purpose of the Wall Street stock market was to raise capital for big investment projects, such as railroads and steel plants. Later on it became a system for owners to take money out of their companies to fund lavish personal lifestyles by selling on their shares to speculators. The activity has about as much to do with investment as the Department of Defence is to do with defence.

There has to be a downside to turning shares into cash-money, and that downside is that you can sometimes lose control of your company.

Amazingly, due to the powers of no-regulation, there’s a way round this problem, as can be seen from the shenanigans at Google by the fabrication of special kinds of shares:

Owners of Google Class A shares — ticker symbol GOOG through Wednesday — will get an equal number of new Class C shares. Those Class C shares will get the GOOG symbol, while the Class A shares will trade under the symbol GOOGL.

Why bother? The new Class C shares have no voting rights. The Class A shares have one vote each, but collectively those votes are dwarfed by the 10-votes-per-share Class B shares. Those shares, which do not trade in the public market, are owned by Google insiders, who will also get Class C shares in the distribution.

As originally proposed by the company, the move would have made it easy for Google’s founders, Larry Page and Sergey Brin, and the chairman, Eric Schmidt, to cash in a large part of their holdings without giving up their voting control. But that ability has been limited after the company settled a class action suit filed by angry (Class A) shareholders, and reached agreements with the three top officials to limit their sales.

So the total number of votes will not be rising, and that will delay the day when the company’s leaders lose voting control of the company. Currently they own less than 16% of the company’s shares, and have 61% of the votes.

I don’t know what the technical situation is with Autodesk’s shares, but they’ve been listed a long time and games like this might have already played out.

I’m on the case because I’d just heard that the directors of Autodesk may be panicking that their cosy self-appointing clique of millionaires and lines of yes-men in their employ could soon be shaken up. Former McKinsey&Company analyst Scott Ferguson‘s activist hedge fund Sachem Head raised $800 dollars in 2013 and is off to make mischief through the acquisition of minority shareholdings in companies on the stockmarket.

This compares in scale with Autodesk’s recent bond issues for $750million in 2012 and another $750million in 2015 used for the purpose of sudden 100% buyouts of companies, whereupon their wonderful managers can be let loose like little children in a toy store with nobody to see how bad they’re behaving.

My first thought was that this might be an action like that of Dan Loeb investing in Yahoo, getting on the board and agitating for the recruitment of Marissa Mayer as CEO as someone who actually had clue about modern software product development and could turn the company around after years of paranoid corporate management by characters like Carol Bartz who cut her teeth running Autodesk for 14 years prior to her term.

But that would be hope triumphing over experience that the corporate-financial-governance world could deliver something positive from the perspective of world wealth and productivity.

As they say in natural history science, the past is the key to the future.

Reviewing the records before this month, I note that Hedgefundtracker in August wrote:

During this quarter, Scott Ferguson’s Sachem Head Capital Management Lp started new positions in Allergan Plc for $295.87 million and PTC Inc for $91.27 million. These were the 2 biggest new positions…

[His] fund disposed its stakes in Actavis Plc (ACT), Salix Pharmaceuticals Inc (SLXP), Mylan N V (MYL) and Bio Rad Labs Inc (BIO). These stocks constituted 15.77%, 8.31%, 7.64% and 2.51% of the portfolio, respectively. We can only speculate about the reasons for the dumping but we believe it has to do with either value, momentum or a better place for Sachem Head Capital Management Lp’s capital.

While an acquisition of a company by Autodesk is allegedly for the purpose of technology synergy or competitive disruption, a hedge fund acquires and manages companies for the purpose of disposal of the remains at a higher price. One can discover the competence and style of these actions by looking at what happened to the tech or the capital a few years after the exciting moments of acquisition long after it has fallen from the news.

Let’s take these reported disposals in order by consulting Mr Wikipedia.

Activis Plc:

Actavis (formerly known as Actavis, plc, prior to the acquisition of Allergan, inc) is a global pharmaceutical company… On June 15, 2015, Actavis, plc changed its name to Allergan…

I can’t work out who owns who, but it’s obvious that the so-called “new stake” in Allergan probably cancels the supposedly disposed stake in Activis. It’s confusing to the financial journalists who seem not to have developed a system.

Let’s check Mr Wikipedia’s record on Allergan, inc then:

On April 22, 2014, details were released by Valeant Pharmaceuticals and hedgefund CEO, Bill Ackman, about a $46 billion offer presented to Allergan… Allergan, Inc stockholders would own 43 per cent of the combined company. This bid was rejected by Allergan as being too risky, claiming Valeant’s business model of serial acquisitions and low organic growth being unsustainable… On May 31 the offer was revised and increased to $53.3 billion. On June 18, Valeant began its tender offer for a hostile takover of Allergan.

In August 27, 2014, Valeant and Pershing Square Capital Management asked a Chancery Judge to set a trial for September 24, 2014 to decide on whether Valeant and Pershing had properly secured enough support from Allergan shareholders to force a meeting of investors to consider replacing a majority of the company’s directors. On the same day Allergan announced that they had set a December shareholder vote to decide whether the company should replace part of the board of directors.

In the afternoon of August 27, Bloomberg reported that Valeant and Pershing Square had won their case with the Chancery Judge setting an October 6 date for the aforementioned trial.

On November 17, 2014, Actavis, plc announced it would acquire Allergan in a white knight bid for approximately $66 billion, putting an end to Valeants hostile takeover attempt.

Hmm. Something familiar about those names from an earlier reference:

Scott Ferguson, a protege of Pershing Square Capital Management’s William Ackman, has raised more than $800 million less than four months after launching his new activist hedge fund, according to people with knowledge of the firm.

Ferguson — who was Pershing Square’s first analyst, eventually becoming a partner — left the New York-based firm after nine years in 2012 to launch Sachem Head Capital Management. Ackman was among Ferguson’s initial investors, according to reports.

Anyways, here’s a short snippet from the press about what it felt like to be the football in this match:

David Pyott (CEO of Allergan) got on the defensive when Ackman, who had a huge stake in Allergan, tried to force the takeover by Valeant. Pyott accused both Valeant and Ackman of insider trading and said Valeant was “vile.”

While the story ended with Allergan being bought, it was by Actavis, not Valeant at $219 a share rather than Valeant’s offer of $152 a share. In addition, Actavis respects Allergan’s business culture and won’t cut its R&D budget.

Pyott said he is often consulted by other CEOs whose companies are under attack by the likes of Ackman.

Still, Ackman was “rewarded” for his efforts; although the horse he backed, Valeant, didn’t win, as a large shareholder in Allergan, he managed to drive up the price of Allergan through the takeover drama, and emerge as one of the most successful hedge fund managers of 2014.

Moving on to Salix Pharmaceuticals (disposal number 2):

In February 2015 Valeant Pharmaceuticals announced it would acquire Salix for $15.6 billion, creating the U.S. leader in gastrointestinal drugs. The deal was completed on April 1, 2015.

Here’s a snippet of news on Mylan (disposal number 3):

In April, Teva has been pursuing a hostile takeover bid for Mylan N.V. for more than $40 billion. Last week Mylan invoked a “poison pill” to avert the takeover, when the Dutch fund Stichting exercised its call option to temporarily takeover Mylan and protect it from being bought…

[Instead Teva is set to buy the generics unit of Allergan plc, in a deal worth $45 billion.]…

If the Allergan unit is spun off and merged with Teva, then Mylan’s $35 billion takeover bid for Perrigo Company could go ahead, as planned.

What do we know about Bio Rad Laboratories (number 4)?

Bio-Rad Laboratories Inc.’s former general counsel hit it with a suit in California federal court Wednesday claiming the life sciences research company illegally fired him after he reported that its leadership may be engaging in bribery in China.

Until 2009, Bio-Rad made $7.5 million in improper payments to Russian, Thai and Vietnamese officials to win business. A federal investigation was resolved when the company agreed in November 2014 to pay nearly $41 million in disgorgement and interest to the SEC and $14 million in fines to the DOJ.

What’s going on here?

It’s like there some kind of James Bond adventure rampaging through the pharmaceuticals industry. Are these two dudes working as a team or as cut-throat competitors? The relationship is disclosed with this story about Zoetis:

Fresh off a big win from investing in medicine for humans, Bill Ackman is now focused on pharmaceuticals for animals.

Pershing Square Capital management recently disclosed an 8.5 percent stake in Zoetis, which makes animal medicine and vaccines that are bought by veterinarians, livestock farmers and other animal owners….

Pershing Square is working on Zoetis with Sachem Head Capital, a more than $2 billion activist investor led by Ackman protege Scott Ferguson. Together, the two hedge fund firms own about 10 percent of the company. Pershing Square said it paid $1.54 billion for its stake, according to a news release.

The reason the past is the key to the future is that people’s skills and experience take a long time to acquire, and that’s what you’ve got to use. It’s a hard fact of human information processing and brain coding and as much part of a man as his language and friendship network.

What’s with these name?

Well, clearly Pershing Square Capital Management takes the name from a concrete plaza outside the train station 18 blocks away from their office in Manhattan. The office of Sachem Head is 8 blocks away.

A Sachem is a native American paramount chief. The word was borrowed by an organization known as Tammany Hall, which dominated New York City politics in the 19th century, as the name for their leaders. This is my guesstimate as to the source for the name Sachem Head. So maybe he wants to get into politics.

This is very American and a big problem for the following reason.

The reason these pharmaceutical companies are so profitable and can deliver minimum service at maximum cost, is that governments grant them patent monopolies to inflate prices by over 5000%. This is justified on the basis of their incredibly inefficient research. But really it gives them huge revenue streams for the financial boys to play with, and deadly conflicts of interest that would be illegal under normal circumstances without the protection of political cover and the ability for the executives to buy themselves out of criminal proceedings by buying out the prosecutor with shareholder money.

It’s a very special industry, perfectly suited for Tammany Hall.

The software business is known to Sacham Head through a small stake in PTC (another CAD company), and CDK Global, which sells car dealership software.

My intellectual interest would lie in determining whether their talents lie in squeezing more money out of the customers who are trapped by their needs or in the production of better products that are more competitive on the open market.

I haven’t got time to look into this anymore today. I’ve just got a Beaglebone Black which I really should have been playing with all morning in an attempt to do something useful with my time. (The only thing I can do about the corporate finance world is to keep myself and my work right out of it.)

Maybe these hedgies will port their know-how from the pharma industry and turn Autodesk into the world’s biggest software patent troll to go after this multi-billion dollar wealth-destroying business.

That would be funny in light of all my complaints to the management at the time about how they were taking out patents, and their assurances that everything was okay, because “We’re not like that,” they said.

This is a bit like being content with the government spying on all our data to protect public safety and the national interest, which is okay until the government changes into something much less benign and it’s all too late.

Even if these speculations are true, it doesn’t help anything because there’s never a reward for being right. The only thing that matters is power.

Leave a comment

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <blockquote cite=""> <code> <em> <strong>