Activist Investing, the Passive Way

These are the facts we know about Third Point's Daniel Loeb and SAC Capital's Steven Cohen: they are both art collectors and they are both wealthy activist investors.

This is what we don't know about the duo: Why Steve Cohen keeps following Daniel Loeb's lead on some less than spectacular biotech investments.

Yesterday, shares of PDL BioPharma took a beating after Third Point disclosed on Friday that it had sold its entire stake in the company. Loeb, who is famous for publicly berating board members and management of his target companies, had been torturing PDL since he took a 7.5 percent stake in it in March.

To Loeb's credit or not, things improved at PDL shortly after he made his presence known. While the board flatly ignored many of his demands, its operations improved and its shares soared as high as $27.70 by June, about 37 percent higher than what Third Point paid for its stake. Not bad for a few months' work.

But instead of unloading then, Loeb kept pushing. Month after month, he wrote to the company's board, demanding that it fire its "unethical" chief executive and seek a sale of the entire company. Its chief executive resigned in August. And in early October, PDL hired Merrill Lynch to help it explore its strategic options. But by then its shares had given back much of their gains.

Frustrated by PDL's refusal to open a board seat for him, Loeb began divesting his shares in early October, for a small premium to what he paid in March. By the time he finally finished unloading them last week, the price had sunk below his initial investment price.

But just a few weeks before Loeb made his exit known, Steve Cohen entered the fray. In early September, SAC Capital announced a "passive" 5.1 percent stake in PDL BioPharma. Evidently SAC planned to let Loeb continue his fight and share in his rewards. SAC didn't disclose the price it paid for its PDL shares, but on the day of its filing, they swapped hands for $20.18. They closed yesterday at $17.91.

This isn't the first time Cohen ended up holding Loeb's refuse.

Back in August, SAC Capital disclosed a 5 percent stake (again, a "passive" one) in Ligand Pharmaceuticals. Just a few months earlier, Third Point had sold off a little more than 5 percent of the company's shares after waging a 16-month battle and declaring it "successfully repositioned."

Unlike the situation at PDL, Loeb earned his keep at Ligand--in return for his efforts, he made about 35 percent on 5.7 million shares. The only mistake he made was not selling his entire stake at the same time. Things went south at Ligand soon after Loeb proclaimed the mission accomplished. By August, Loeb's remaining two million shares were worth about the same as he paid for them nearly two years earlier.

Enter Steven Cohen. SAC Capital didn't disclose the price it paid for Ligand shares, but at the time of the filing, they sold for about $5.65 per share. Yesterday they closed at $4.84, or about 14 percent below their August price.

According to regulatory filings, both SAC and Third Point still own their Ligand shares.

But even if the Ligand investment turns out to be a bust for SAC, the passive-activist investor still could end up looking like the winner with its PDL BioPharma investment. Just days before Loeb cut bait, another activist fund, Highland Capital, disclosed a 4.7 percent stake in the firm. Its letter to PDL's board made many of the same demands that Loeb had been making for months.

Indeed, Credit Suisse research analyst Katherine Xu is confident that a sale of the company will happen, possibly to Genentech, Biogen, or Pfizer. She values PDL at $26 per share.

Today its shares have rebounded more than 2 percent. For all of the noise Loeb made, the quiet Cohen may end up ahead on this one.


by Megan Barnett