Deutsche Bank's Stefanick: Icahn, Loeb, Ackman Don't Know How To Run Companies In Every Industry
In an interview with Bloomberg's Stephanie Ruhle (@SRuhle), Deutsch Bank's Head of Global Investment Banking Coverage & Advisory Co-head of Americas Corporate Finance Paul Stefanick said he and CEOs are 'very concerned' about activists and he feels short-term activism isn't helpful, "Corporations deserve a lot of credit for knowing how to run their businesses. Activism that just is really short-term in orientation -- show up, rattle your saber, hope for a short-term pop in the share price, that's really not helpful."
Stefanick said he he's 'even more active' M&A this year and the IPO Markets 'hot start' will continue this year, "despite some recent moderation in the IPO market from a very hot start to the market, it's really just some rationality coming into the marketplace. We don't see the market getting weak get all. In fact, we have about 53 billion net flow into equity funds into this year already, so we're quite optimistic about what's going to happen this year."
Stefanick Sees 'Even More Active' M&A Year in 2014
Stefanick on what he expects for the year:
"An even more active M&A year, Stephanie. M&A activity, first of all, just to put it in context, that almost three-quarters of $1 trillion just in this market already this year. That's up over 80 percent from last year largely driven by the biggest M&A transitions, the mega-deals that everybody is reading about."
On whether Sprint-Softbank is what has more companies excited:
"It's really industry consolidation. Shareholders are rewarding companies for taking cost out of their businesses by simply consolidating businesses, taking cost out, shareholders capitalize those cost savings and afford it to the trading value of the acquiring company."
On whether IPOs will start to slump off:
"Not really. Despite some recent moderation in the IPO market from a very hot start to the market, it's really just some rationality coming into the marketplace. We don't see the market getting weak get all. In fact, we have about 53 billion net flow into equity funds into this year already, so we're quite optimistic about what's going to happen this year."
On whether the market has the appetite to absorb major deals like Alibaba:
"Absolutely. And look at what happened last week. JD.com, another Chinese internet retailer, went public last week, priced above the range, and traded up 10 percent in the aftermarket. So it's a good example of the kind of activity we're seeing in the marketplace."
On what huge inflows into equities means for fixed income, investment grade, and high yields:
"It's interesting question. The market is still very robust for the -- for their products. But happened last year, we saw record activity last year in simple refinancings of investment grade and noninvestment grade debt. The market was so good, however, though, that everybody did what they needed to do last year, so the debt markets are off 25 percent in terms of new issue activity this year simply because there's much left to do."
On whether there are concerns that there is a bubble in debt markets:
"The deals are being done in a much more rational way. Yes, some convenient light deals have reemerged into the marketplace, but investors are much more savvy than they were back then and they've learned their lesson. So this is what the market will bear, and it's a very exciting and deep market right now."
On how concerned CEOs are about activists knocking on their door:
"They're very concerned it. I think the first thing you need to realize about activism, it's a very real, legitimate asset class. There's about $100 billion invested in activist funds right now. That's about a 28 percent compound annual growth rate from 2008. So they're here to stay and they need to be taken seriously. Constructive activism has led, in some people's views, to some real improvements in corporate governance. It also doesn't hurt that they've outperformed the marketplace more broadly over the last couple of years."
On whether Ackman, Icahn and Lobe know how to run all these different industries:
"No, they don't. Corporations deserve a lot of credit for knowing how to run their businesses. Activism that just is really short-term in orientation -- show up, rattle your saber, hope for a short-term pop in the share price, that's really not helpful. But that's really not what we're talking about. Activism, activists that are longer term in nature, that try to be constructive, as I said earlier, have tended to generate some positive impact on corporate governance. It doesn't mean it hasn't been painful for those companies in the short term as they go through those changes."
On whether the treat of activism caused companies to tighten their game and start to manage in a smarter way:
"Yes. And you're seeing this playing out in the M&A marketplace right now. It used to be said that CEO confidence was really sufficient to drive M&A activity. I would argue that it's necessary but no longer sufficient. Focusing on core competencies is really what's sufficient at this point in time. And a lot of that pressure's coming from activists. And it's playing out in two ways in the M&A market right now. One way, we're seeing all the break-ups of companies, so Pfizer, Ingersoll Rand, Timken, Hertz just announcing a split up. That's one way to do it, because essentially in those transactions, people are arguing that the sum of the parts is greater than the whole so you can establish the -- you can establish an increase in shareholder value by simply getting out the sum of the parts. The other way it's playing out is in all the industry consolidation transactions I referred to earlier, so all the mega-deals that we're reading about, whether it's AT&T-DirecTV, GE-Austin Power (ph). These are enormous deals that are industry consolidation transactions taking a lot of cost out of the business, and the shareholders are quick to capitalize those."
On whether today is a good time to be a shareholder:"It's a good time to be a shareholder, for sure. It's a good time to be a -- it's always a good time to be a long-term shareholder, as history has proven, but the answer to that question is yes. And also, remember, we still have a very favorable environment. Yes, economic growth is relatively low, but people don't ascribe the whole lot of risk to that. We've got relatively low volatility. There's a lot of capital available for companies to do the kinds of things they want to do to grow their businesses. So, yes, we're quite sanguine about the prospects of being a shareholder for the long-term."