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Steel Partners' activism efforts at United Industrial, Ronson, and BKF Capital: The good, the bad, and the ugly

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  • Timothy A. Kruse
  • Kazunori Suzuki
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    Abstract

    Purpose – This paper seeks to analyse Steel Partners' investments and activism targeting United Industrial, Ronson, and BKF Capital to provide context for the debate surrounding shareholder activism by hedge funds and how incumbent management should cope with it. Steel Partners is one of the busiest and most controversial activist investors in both the USA and Japan. Design/methodology/approach – An in-depth clinical analysis of Steel Partners activism at three targets is performed. Context is then provided with a broader study of 63 companies targeted by Steel Partners. Findings – The paper reveals that Steel achieved remarkably different degrees of success with each target. This analysis suggests the use of longer post-activism windows to examine performance, more nuanced definitions of successful activism, and the inclusion of officer and director ownership as a predictor of activist success and target performance. Practical implications – Managers wishing to maintain their independence face a difficult balancing act. One option is simply to refuse to negotiate, preferably while maintaining a substantial ownership stake. However, the activist might launch a proxy fight or hostile bid, file a lawsuit, or even encourage a wolf-pack type campaign. For activists, target selection, especially managerial ownership, and patience are important. Steel quickly achieved its goals at BKF and failed at Ronson despite maintaining its stake for more than 13 years. It suffered large losses in both cases. Originality/value – This paper provides researchers and practitioners with additional insights into the debate concerning the value of hedge fund activism. It also suggests several new questions to researchers examining corporate governance and activism.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Managerial Finance.

    Volume (Year): 38 (2012)
    Issue (Month): 6 (May)
    Pages: 587-605

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    Handle: RePEc:eme:mfipps:v:38:y:2012:i:6:p:587-605

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    Related research

    Keywords: Corporate governance; Hedge funds; Hedging; Mergers and acquisitions; Shareholder activism;

    References

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    1. Lucian Arye Bebchuk & John C. Coates IV & Guhan Subramanian, 2002. "The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence and Policy," NBER Working Papers 8974, National Bureau of Economic Research, Inc.
    2. Coles, Jeffrey & Lemmon, Michael & Meschke, Felix, 2007. "Structural Models and Endogeneity in Corporate Finance: the Link Between Managerial Ownership and Corporate Performance," MPRA Paper 4374, University Library of Munich, Germany, revised 15 Feb 2007.
    3. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
    4. Marco Becht & Julian R. Franks & Colin Mayer & Stefano Rossi, 2008. "Return to shareholder activism: evidence from a clinical study of the Hermes U.K. Focus fund," ULB Institutional Repository 2013/13304, ULB -- Universite Libre de Bruxelles.
    5. April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, 02.
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