Long-time Going Private readers will express little surprise when confronted with hints that I dislike Andrew Ross Sorkin's style. (Or that I just plain dislike Andrew Ross Sorkin). My disdain tends to be connected to the phrase "a little knowledge is a dangerous thing," and, unfortunately, that tends to be magnified by the fact that Sorkin has the resources of the New York Times at his disposal to spread his pet theories. Like all good practitioners of the narrative fallacy, Sorkin's explanations sound reasonable at first blush. They do not, however, stand scrutiny well- but then I don't think the typical New York Times reader regards skeptical inquiry as a virtue. This would not disturb me so much were most of his spoutings not of the populist variety.
This sort of demagoguery previously prompted me to describe Sorkin as...
...a dangerous fool who is prone to do some serious damage wandering around carrying a Louisville slugger with nails driven through it while wearing a red bandanna fashioned into a blindfold and swinging wildly at dangling financial issues in the middle of a seven year old's birthday party.
So back in August, Sorkin speculated aloud that "...the credit crisis may have just claimed its latest casualty: the so-called activist shareholder." He went on to spout off that:
"...activism, for the most part, is a one-trick pony. For all of activists’ hemming and hawing about strategic change, their real mission boils down to four things: have the company sold, break the company up or push it to take on debt so it can buy back stock or issue a big dividend."
Let's examine that closely. Activism is a "one-trick-pony." What if we were to outline the activist strategy as a "one-trick" approach?
1. Activist Goal:
1(A). Sell company
1(B). Break company up
1(C). Assume debt to:
1(C)(1). Mount stock buy-back program
1(C)(2). Issue dividend
So that's how Sorkin defines "one-trick" I suppose. Of course, Sorkin has neglected some activist "tricks" in his analysis, including:
1(D). Acquire company in tender offer, and:
1(D)(1). Improve operations before:
1(D)(1)(a). Selling company to private buyer
1(D)(1)(b). Going public
1(D)(2). Hold indefinitely for cash flow
1(E). Agitate for corporate governance improvement and:
1(E)(1). Sell stake for gain, or
1(E)(2). Push for sale of improved company, or
1(E)(3). Mount proxy fight, and:
1(E)(3)(a). Sell stake for gain
1(E)(3)(b). Push for sale of improved company
I am, of course, only scratching the surface. Still, that's a pretty big "one-trick" for a pony to have. Sorkin continued:
All of those strategies rely on cheap capital, but because of the current credit squeeze, that financing is vanishing. The big buyout firms have already been stopped cold in their tracks. That may mean the activist bravado of yore — and the typically unspoken symbiotic relationship between buyout firms and activist hedge funds — may disappear along with easy credit.
Reading this, I suppose Sorkin couldn't have been much of a Going Private reader, since that "unspoken symbotic realtionship" was the subject of much discussion on my part several months earlier. Indeed, almost a year before Sorkin's great revelation about the one-dimensional nature of activism, Going Private already had an entire category dedicated to the topic. I was hardly the first person to cite these kinds of relationships either.
Equally unsurprising, given the shaky ground his assumptions stood on, is the fact that Sorkin was dead wrong. The only surprise is that DealBook (a.k.a. Sorkin) bothered to cite Sorkin's wrongness. But Sorkin seems to like citing Sorkin, so perhaps that was actually more predictable than we might have thought. Funny, I wouldn't have even noticed had it not been for (the always yummy) Abnormal Returns.
We can hardly blame Sorkin, however. Like many (most?) of his peers in financial journalism, familiarity with the basic tenants of investor strategy is, apparently, not a compelling prerequisite to writing pieces on the investors who employ them. It is difficult to hold Sorkin to any kind of higher standard. Really, his awareness that there is such a thing as an "activist investor" probably gives him a B- on the curve of the financial journalism knowledge test. Being unaware that activists do more than just employ leverage is par for the course when it comes to the universe of anti-capitalist journalists.
Still, one gets a lot of negative points from me for badmouthing activist hotties.