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The following is excerpted from Merger Masters: Tales of Arbitrage by Kate Welling and Mario Gabelli Copyright © 2018 Kate Welling and Mario Gabelli. Used by arrangement with the Publisher. All rights reserved.
There’s a set of mind that is an absolute requirement. If you’re not a person whose starting point is “what am I missing?” rather than “how frickin’ great am I?” you are missing something essential to survival. “What am I missing?” is like oxygen. If you’re asking, “How great am I?” you’re the Night of the Living Dead.
Paul Singer
Take it as a given, based on that quote, that you’re not going to encounter Paul Singer tooting his own horn – though he is reputed to rock the piano, strictly among friends. To be sure, Singer, the founder, president, and co-CEO at Elliott Management Corporation, the $34 billion hedge fund he founded with $1.3 million of family and friends’ money in 1977, doesn’t have to boast. His fearsome reputation precedes him.
Widely perceived as tough, aggressive, scary-smart, and fiercely unyielding, Singer, seventy-three, is often described in print as a combative Wall street investor and activist who has faced down nations, from Argentina and Peru to the Republic of Congo, to be paid his due on Elliott Management’s investments on defaulted sovereigns – once even having the argentine navy’s tall ship impounded to press his claims. Nor do either a target’s size or its reputation seem to daunt Elliott Management. In the spring of 2017, Elliott went public with demands that Australia’s BHP, the world’s largest mining company, spin off its U.S. oil assets. The Australians grudgingly complied, announcing they would seek to exit their U.S. shale ventures. Late that summer, Singer thwarted Warren Buffett’s Berkshire Hathaway’s planned takeover of a long-troubled Texas utility, Oncor Electric Delivery Co., by demanding his bid be sweetened by at least $300 million. Singer’s fund had picked up a slug of Oncor’s junior debt in bankruptcy and that sizeable increase in the bid would have put it in the money. When the famously value-conscious Berkshire Hathaway chairman refused to budge, san Diego-based Sempra energy swooped in with a bid of $9.45 billion for 100 percent of Oncor’s parent, energy Future Holdings Corp, which amounted to $450 million more than Buffett’s offer. (Energy Future, the erstwhile TXU Corp., was subjected to a spectacularly ill-timed leveraged buyout – at $45 billion, the largest ever – in 2007 and finally emerged from its long-running bankruptcy when the Sempra deal was completed in March 2018.)
Singer’s Elliott Management is also credited as the activist fund responsible for driving EMC Corp. into the arms of Dell in 2016, creating the largest tech merger in history. It has likewise played the activist role in a long line of liquidity events in technology companies, including Mentor Graphics, LifeLock, Polycom, Compuware, Informatica, Novell, Riverbed, and Qlik Technologies, among others. In the tech sector, says Singer, Elliott has frequently “found itself knocking on an open door.” Managements were relieved, in other words, in one way or another, to find Singer’s fund coming up with solutions to issues that may have seemed intractable from the inside. Elliott Management’s activism has likewise reshaped industries outside of the tech sector. Its sudden appearance as a large and dissatisfied shareholder in Cabela’s, in 2015, for instance, ended up driving the outdoor outfitter’s merger with rival Bass Pro shops a year later.
Shortly before the financial crisis, in early 2007, Singer warned the G-7 finance ministers – to no avail – about the critical vulnerability of major banks. During the Obama administration’s bailout of Detroit, it was Singer’s last-minute intervention in tense negotiations with the U.S. Treasury’s auto task force that permitted crucial General Motors supplier Delphi automotive to emerge from bankruptcy and allowed GM to reopen plants. More recently, after the Brexit vote hammered the value of the pound, Elliott Management was one of several large shareholders that succeeded in convincing Anheuser-Busch to increase its original cash bid for SABMiller to compensate shareholders for the decline in the British currency.
Singer is crystal clear on the principle that has guided his career. “I don’t want to lose money, ever, with no excuses. My goal with investors is a combination of underpromising and overdelivering whenever I can. And I try not to be benchmarked. We just try to make a moderate return – as high as possible – given that our goal is not to lose money.” Elliott’s performance over its forty-year history offers abundant evidence that he’s rarely failed to sail over that bar. News reports cite his fund’s track record of consistent returns (around 13.5 percent annually, on average), including only two down years (1998 and 2008) out of more than forty.
Read the full article here by Mario Gabelli and Kate Welling, Advisor Perspectives
