CORPORATE TAKEOVERS
Your management insights might not impress the officers and directors of companies whose stock you own. But in concert with enough like-minded shareholders, your voice becomes hard to ignore - and if you spur a company to take actions that improve its share price, the rewards can be huge. That's the idea behind Allied Owners Action Fund, a mutual fund dedicated to shaping up corporate laggards.
The heart of AOAF (which requires a $2,500 minimum and charges 1 percent for management) is an array of message boards where investors, aided by 36 savvy moderators, plot goals and strategies. "The Internet can turn shareholder rights from an illusion into a reality," says Martin Stoller, a management professor at Northwestern University who, with finance professor Aaron Brown of Yeshiva University, launched the fund in March 2000.
AOAF identifies a solid company with questionable leadership, then quietly buys up to 5 percent, hoping to create a unified bloc of shareholder votes that sends a clear signal to management. Then Stoller and Brown show up at the door and suggest changes.
They don't always get a warm reception. "I don't know what their agenda is, other than to be disruptive," comments John Sottile, president of Goldfield (GV), the fund's latest target.
All-out war with prospects is only one of the fund's risks. Indeed, the results so far have been disappointing. Since its inception, AOAF has raised only $2 million (compared with the average equity fund's $217 million) and has lost 47 percent of its value.
Nonetheless, shareholder advocates have faith. "Not all investors may want to invest with them yet," says Nell Minow, editor of the Corporate Library, an organization devoted to issues of corporate governance. "But all investors should study their approach, which represents an unprecedented way for retail investors to create shareholder value." Minow should know; she cofounded LENS, a $100 million hedge fund that reformed two dozen stock market underachievers during the 1990s.
Stoller and Brown blame AOAF's dismal performance on the fact that it launched just as Nasdaq plunged. Year to date, they point out, it's up 15 percent. With public companies under pressure to let shareholders in on everything from stock option plans to environmental standards, AOAF may just be ahead of its time.
- Chuck Epstein (cepstein@prodigy.net)
Allied Owners Action Fund: www.eraider.com.
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