The credit squeeze

There's quite a perceptive Lex column in today's Financial Times.

The item that especially caught my attention concerned activist investors and the effects of the present credit squeeze on their strategies.

The columnist means by "activist investors" not the folks who are interested in, say, a businesses' carbon footprint or whether it does business with Burma. He means the investment funds that seek to make a profit off of pressing managements for changes -- telling the managers, sometimes through the mechanism of an actual or threatened proxy fight, that they should merge with somebody, or sell off non-core subsidiaries, or initiate a stock buy-back program, etc.

This has become a more difficult way of making money than it used to be. The reason? In order to do this, you have to start off with a substantial chunk of a company's stock, and you (the activist) would generally acquire that chunk with borrowed money. Obviously, as money gets harder to borrow in relevant quantities this gets more complicated.

But that's not the worst of it. For as credit gets tight, its harder to make the case for dividend pay-outs or stock buy-backs. Management push-back against such proposals will be more vigorous.

The spin-off of non-core assets gets more difficult, too. Spin them off to whom? Who is buying these days?

"Many activist funds" the FT tells us, "may be in for a long, hard slog."

Comcast update

I last wrote about Comcast on January 23. It's time for an update on that situation.

Last week Comcast, the cable operator, announced a revision in its compensation package for the company founder, Ralph Roberts. He was paid $1.85 million in 2007. His salary for 2008 will be a little bit less. $1,849,999 dollars less.

The company will also eliminate a benefit that was to have continued payments to Mr. Roberts' estate for five years after his death.

These moves are widely attributed to the influence of Chieftain Capital Management, which owns about 2% of the company's equity.

Executive compensation issues are, generally, eyewash. In a more substantive move, though, Comcast said that it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade, sending the shares up the most since 2002.

A Bloomberg reporter, Todd Shields, interviewed Glenn Greenberg (Chieftain's managing director) last week. Greenberg told Shields: "They certainly hit on all the important points, which we and others had been discussing with them. Now it's up to them to create value, which they have not done in the past 10 years."

Another issue that has arisen in the Comcast context recently is that of "core" versus "non-core" acquisitions as growth strategy. I'll have a few words to say on that theme tomorrow. Until then, enjoy President's Day.