Hedge fund activism: insights from a French clinical study

Abstract

Over the period from October 2006 to May 2008, Atos Origin, a French information technology company, was the target of two activist hedge funds, Centaurus and Pardus. This article investigates in detail how the activists initiated their actions, how the management organized its defence and how both were received by the market. The analysis reveals that, although Atos seemed to be an attractive opportunity, the funds failed in their primary objective, the sale of the target. In fact, the chairmen of Atos succeeded in discrediting the two hedge funds by getting support in the French context, not particularly prone to and sometimes even hostile towards shareholder's interests. Our findings show that the success/failure classification used in large-sample studies, and based very often on officially stated goals, bears a considerable risk of misinterpretation. The Atos case shows that empirical studies should more heavily rely on what really matters for hedge fund activism, i.e. the sale of the target, spin-offs or cash-outs. While governance related motives are often mentioned and easily enforced, they do not make activism profitable and cannot, by themselves, be considered as primary motives for hedge fund activism. As a consequence, the success of hedge fund activism should be assessed considering primary motives only.corporate governance, activism, hedge funds, corporate defenses, entrenchment,

Returns to Hedge Fund Activism: An International Study

“…An example from France serves to illustrate the (rare) case of explicit collaboration between activists: In 2006, Centaurus Capital and Pardus Capital Management successfully engaged Atos Origin, a French information technology company(Bessière, Kaestner, and Lafont 2011). Centaurus disclosed a 5.5% stake in October 2006,…”

Principal-principal conflicts leading to activism of a large government-owned investor in Brazil

“…Not many public actions resulting from activism were found in the period BNDESPar was a shareholder, in line with the evidence in the literature for Brazil (Vargas et al, 2018). Even though some actions focused on items that could have a positive impact on CG practices and performance, such as executive compensation, board member election, and the attempt to replace or interdict board members, the opposition of the controlling shareholders prevented many of them from being successful (Bessière, Kaestner, & Lafont, 2011;Crisóstomo & González, 2006).…”

“…The difficulties encountered by an institutional investor to exert influence on a company with a controlling shareholder were evident, even though both the investee and the investor had public entities as their controlling shareholder, but not necessarily of the same political group (Bessière et al, 2011).…”