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Archive for the ‘Shareholder Activism’ Category

Forbes has a great article on Carl Icahn’s activist campaign at Oshkosh Corporation(NYSE:OSK) called Is Icahn Trying To Nickel And Dime Oshkosh? Sum Of The Parts Worth Way More, BofA Says. Icahn, who, according to the article, holds 9.5 percent of the outstanding stock, is pushing to takeover the company and possible split it up. Icahn has offered $32.50 per share for the stock he doesn’t own. Bank of America’s analysts argue that the value of OSK is between $35 and $38 per share:

Their view, they noted, is supported by the average price target analysts have on the stock, which is approximately $32. Data from Thomson One shows that out of the 14 analysts that cover Oshkosh, 8 have a “buy” or “strong buy” for the stock, with a mean price target of $32.91 and a median of $34.

That valuation excludes a change of control premium, which Bank of America estimates should be between 20% and 30% over their estimate. That would take their sum of the parts valuation to between $42 to $49 per share. “While we believe that it would be very hard to get a bidder without significant synergies at levels greater than $42/share, the current offer of $32.50 while representing a 21% premium to closing price on October 11, 2012 [sic] seems indeed too low,” they added.

Read the article.

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A new Journal of Finance paper examines whether improvements in a company’s internal corporate governance create value for shareholders. In The Vote is Cast: The Effect of Corporate Governance on Shareholder Value Vicente Cuñat, Mireia Gine, and Maria Guadalupe analyze the market reaction to governance proposals that pass or fail by a small margin of votes in annual meetings to identify the  impact of shareholder sponsored changes to governance rules on shareholder values and management behavior. Cuñat et al find that passing a proposal leads to significant positive abnormal returns:

Adopting one governance proposal increases shareholder value by 2.8%. The market reaction is larger in firms with more antitakeover provisions, higher institutional ownership, stronger investor activism, and for proposals sponsored by institutions. In addition, we find that acquisitions and capital expenditures decline and long-term performance improves.

The authors also conclude that, besides establishing how much shareholder value is generated by increasing shareholder rights and improving corporate governance inside firms, shareholder activism can create significant value:

Improving democracy inside firms, so that shareholder proposals that fall short of the majority threshold pass, would be value-increasing. We are able to precisely quantify that value.

We find that institutional activists’ proposals have higher effects, with an abnormal return of 2.1% on the day of the vote and a further 2.2% over the following six days. For individual proponents, the cumulative effect after one week is just 1.1%, and it is not statistically different from zero.

Read the full paper here: The Vote is Cast: The Effect of Corporate Governance on Shareholder Value (February 17, 2010 version on SSRN)

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