Here's a paradox: Activist investing had been booming during the past few years, and now the market has collapsed, driven in large part by incompetent management and poor corporate governance.

So now that the stuff has hit the fan, you might think that activists would be entering a golden age, empowered by the value destruction plaguing so many companies. Writing in Barron's, Ken Squire recently argued that in fact we are entering a new "golden age" for activist investing. But I am skeptical. In a post on DailyFinance, I argued that the downturn in mergers and acquisitions activity was eliminating one of the favorite tactics of activists -- pushing firms into the hands of private equity or strategic buyers. Without that options, activists would be hard pressed to create value quickly enough to satisfy investors.

Today's USA Today reports that activist activity is tanking right along with the stock market: "Yet the number of new activist shareholder cases against companies fell 75% in the fourth quarter to just two, according to data from Thomson Reuters. That's well below the 23 new cases in the first quarter of 2007. Activist cases for all of last year fell 44% from 61 in 2007."

Matt Krantz suggests that the downturn in activist investing is driven by a lack of funding, retrenchment on the part of hedge fund managers who have lost money, and uncertainty about the economic outlook.

But my hunch is that the biggest driver of this downturn in activist investing is the hugely reduced market for taking under-performing, undervalued public companies private. Without that, activists are stuck with lengthy proxy fights, greater operating responsibility, and a much longer time horizon. That's enough enough to reduce the urge to declare war with a 13-D filing.


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