Hedge Fund News: Edward Lampert, Carl Icahn, D.E. Shaw

Edward Lampert and His White Whale, Sears (The New York Times)
A tragic figure in American literature has an analog in modern finance. Once upon a time, the billionaire investor Edward S. Lampert was hailed as the next Warren E. Buffett. These days, his decade-plus obsession with the struggling retailer Sears resembles Captain Ahab’s with Moby-Dick. Mr. Lampert was a hedge fund star when he took the discount store Kmart out of bankruptcy in 2003 and merged it with Sears two years later. A devotee of Ayn Rand and Mr. Buffett, Mr. Lampert had parlayed $28 million of seed corn into a spot on the Forbes rich list by making savvy bets on undervalued companies.


Dealpolitik: Carl Icahn’s Apparent 360 on Herbalife Could Have Used More Transparency (The Wall Street Journal)
Last week, Carl Icahn had the market guessing about his intentions toward ownership of Herbalife shares. The latest surprising twist in a saga that’s been full of them came when The Wall Street Journal reported Friday that he had been exploring a sale of his stake. When the stock fell sharply Friday as a result, Mr. Icahn took advantage of the dip to substantially increase his holdings. The Securities and Exchange Commission requires shareholders who, like Mr. Icahn in this case, own more than 5% of a company, to be transparent about their plans, so it all raises the question: Should Mr. Icahn have issued some disclosure before he traded?

D.E. Shaw Set To Enter Race For SunEdison’s TerraForm Power: Sources (Reuters)
Hedge fund manager D.E. Shaw & Co LP is weighing a bid for SunEdison Inc’s (SUNEQ.PK) controlling stake in TerraForm Power Inc (TERP.O), the bankrupt U.S. renewable energy producer’s most valuable asset, according to people familiar with the matter. D.E. Shaw’s emergence as a possible bidder for TerraForm Power indicates that the potential sale process for the so-called “Class B” shares of TerraForm Power, which was formed by SunEdison to buy and operate its solar and wind power plants, is likely to be competitive. Another hedge fund, Appaloosa Management LP, and asset manager Brookfield Asset Management Inc (BAMa.TO), have already announced plans to jointly bid on SunEdison’s TerraForm Power Class B shares.

Williams Names 3 Directors Amid Fight With Activist Corvex (Reuters)
Pipeline company Williams Cos Inc (WMB.N) added three new directors to its board on Monday as it works to fend off an attempt by activist hedge fund Corvex Management to replace all of the company’s directors. Williams said on Monday it appointed Pioneer Natural Resources Co (PXD.N) CEO Scott Sheffield, PPL Corp (PPL.N) CEO William Spence and former American Midstream Partners (AMID.N) CEO Stephen Bergstrom as directors, effective immediately, increasing the size of its board to 10 directors. Corvex, run by Carl Icahn protege Keith Meister, nominated a slate of 10 directors last week, after assailing the quality of Williams’ current directors.

Virtually No Institutional Investors Are Happy With Activist Hedge Funds Right Now (Bloomberg)
The ongoing squabble between billionaire hedge fund luminaries William Ackman and Carl Icahn over Herbalife Ltd. distracts from a large warning sign for activist managers: they’re failing to live up to the expectations of institutional investors. The August edition of research provider Prequin’s Hedge Fund Spotlight shows that 100 percent of institutional investors surveyed indicated that returns on their activist hedge fund investments had fallen short of their expectations.

Herbalife May Have Misled Investors, SEC On Impact Of FTC Deal, One Short-seller Says (Reuters)
After U.S. multi-level marketing company Herbalife settled a probe of its sales practices with the U.S. Federal Trade Commission last month, top executives assured investors that the company would be able to thrive under the new rules. The consumer protection agency had questioned the company’s sales methods. Billionaire investor William Ackman in 2012 claimed the company was running a pyramid scheme, recruiting members with a promise of payment for enrolling others in distribution, rather than depending on the actual sale of its nutritional supplements and weight management products.

Young Hedge-Fund Manager Cracks The Private-Equity Code: Small Stocks And Leverage (Forbes)
Private equity is a $4 trillion industry based on a monumental misperception. Private-equity executives tout their ability to reap outsized returns by buying troubled companies, turning them around and selling them for multiple times their initial investment. But here’s a tip: You can do the same thing by buying highly leveraged small-cap stocks. It’s not quite that simple – there are no simple ways to make money in the stock market – but private equity isn’t that complicated, either. Dan Rasmussen knows, because as a young Harvard graduate working at Bain Capital he was assigned to a team that analyzed what worked and what didn’t in private equity.