Hedge Funds Find That Activism Pays

Onetime Carl Icahn protégé Keith Meister, 39, engineered a quick sale of Ralcorp Holdings, which makes private-label foods for grocers. In August he bought 5 percent of Ralcorp, which walked away from a takeover bid by rival ConAgra Foods the year before. With Meister on the board, Ralcorp changed its mind and sold. When ConAgra completed its $5 billion acquisition in November, Chief Executive Officer Gary Rodkin said it made his company a leader in North American foods. Ralcorp CEO Kevin Hunt said the deal provided “compelling cash value to shareholders.” Meister’s Corvex Management turned a quick $90 million profit on its $189 million investment, a 48 percent return in a matter of months.

Amid a lukewarm dealmaking environment last year, shareholder activists such as Meister launched 219 campaigns against companies they deemed undervalued, the most since 2008, according to data from FactSet Research Systems. “We have seen a dramatic increase in the level of shareholder activism,” says Patrick Ramsey, co-head of Americas mergers and acquisitions at Bank of America, who predicts that activism will contribute to an increase of M&A activity this year. High returns attracted about $3.8 billion of investment to activist funds in 2012, compared with a net $1.8 billion in 2010, according to Hedge Fund Research. Their returns averaged 25 percent last year, reports money management firm AlphaClone.