The world's biggest fund managers are giving shareholderactivists the muscle to take on larger companies from Dell Inc. toMicrosoft Corp.

“They're able to go after big companies because they are veryeffectively communicating with large institutional stockholders,”said Scott A. Barshay, a partner at the law firm Cravath, Swaine& Moore LLP, at the annual Bloomberg Markets 50 Summit in NewYork today. “That's a very new phenomena.”

Activist investors, who typically take small stakes in companiesand lobby for higher dividends, stock buybacks or managementchanges, have also recently targeted Apple Inc., Yahoo! Inc. andChesapeake Energy Corp. with their campaigns. The activist fundsare increasing in size, and large mutual funds have shown anincreased willingness to back shareholder proposals.

Companies with a market capitalization of more than $10 billionrose to 5.7 percent of targets this year, from 2.6 percent in 2010,according to researcher Activist Insight. A study of 25 largemutual funds, including BlackRock Inc. and Dodge & Cox showthey increased support of shareholder proposals by 33 percent from2004 through 2012, according to Fund Votes, which tracks theirvoting habits.

“Probably the most effective activists today are theinstitutions themselves,” said Lazard Ltd. Chairman and ChiefExecutive Officer Kenneth Jacobs, who spoke on the same panel asBarshay. “What's really happened in the market today is that whatwe call 'activists' have become a voice for thoseinstitutions.”

Steve Ballmer, CEO of Microsoft said he would retire — fourmonths after activist fund manager ValueAct Capital Partners LP'sJeffrey Ubben disclosed a $1.9 billion stake in the software maker.Carl Icahn has invested about $1 billion in Apple and said inAugust he wants the technology company to increase its buybackprogram to boost the share price.

The investors have also extracted higher prices from buyers byraising objections to large takeovers this year. The resistancecomes amid a general rise in activism, with assets managed byactivist funds more than doubling over the past five years, toabout $73 billion as of the first quarter, from about $32 billionin 2008, according to data compiled by Hedge Fund Research.

Dell Inc. founder Michael Dell and Silver Lake Management LLChad to raise their offer to take the personal computer makerprivate, after facing objections from Icahn and other institutionalshareholders, before the $24.9 billion deal could be approved. Dellwon that approval this month. In April, MetroPCS CommunicationsInc.'s shareholders approved a sweetened deal to merge withDeutsche Telekom AG's T-Mobile USA after Deutsche Telekom bowed tothe demands of investors including Paulson & Co.

Deal Rebound

A pickup in deal making globally will only follow a recovery inconfidence among buyers, Jacobs said.

“We've had two factors in place for several years now: financingand valuation,” he said. “The challenge has been confidence,” whichwill return when “we start to get the real seeds of an economicrecovery.”

While buyers have announced $1.64 trillion in purchases thisyear, up from $1.46 trillion last year, that's still less than halfthe value of deals announced in the same period in 2007, before theglobal financial crisis.

“Because of the effect of the downturn you've got acquirers, orwould-be acquirers, out there who just want so little risk indeals” said Barshay.

Lazard has served as an adviser on 132 acquisitions this year,with a total value of $138 billion — including the $23 billiontakeover of Heinz Inc. by Berkshire Hathaway Inc. and 3G CapitalInc., and Amgen Inc.'s $10.4 billion purchase of OnyxPharmaceuticals Inc., data compiled by Bloomberg show.

Cravath, Swain & Moore was a legal adviser on Amgen's deal,as well as Liberty Global Plc's $16 billion takeover of VirginMedia Inc. this year.

Bloomberg News

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