The examples stated above epitomize the increasing pressure of shareholders activists. The CBS/CNet deal has been, for a large part, prompted by an angry campaign led by the investment firm Jana Partners LLC. Jana criticized CNet strategy and called for a complete overhaul of the board. Actually, more and more media companies are facing shareholder actions. In past Monday Notes, we described the New York Times under attack by the Harbinger-Firebrand combined hedge funds. The Deal.com, a financial website, reviews the scope and the reasons behind such activism.
The flurry of deals in the Internet sector raises another question: are we facing another kind of Internet Bubble? In a lengthy article, the Wall Street Journal tells the story of financial bubbles in general, from internet to Chinese stocks or the US housing market. Here are some clues: – “Bubbles don’t spring from nowhere. They’re usually tied to a development with far-reaching effects: electricity and autos in the 1920s, the Internet in the 1990s, the growth of China and India. At the outset, a surge in the values of related businesses and goods is often justified. But then it detaches from reality.” And therefore, it is extremely difficult to go against the tide of optimistic investors. Until the tip of the curve. – Then, “When a lot of borrowed money is involved — as it often is in a bubble — once prices peak, the speed of their fall is intensified as investors sell urgently to pay down debt”. – Finally comes the “trading signal” : “At the height of the tech bubble, Internet stocks changed hands three times as frequently as other shares. “The two most important characteristics of a bubble are: People pay a crazy price and people trade like crazy”, says one of the researchers
Interestingly enough, this excellent WSJ story details the sources for its research. The Princeton trio the article refers to had been hired by current Federal Reserve Chairman Ben Bernanke, who was at the time head of Princeton economics department. The team was made of foreign born students (Chinese, Vietnamese and German) ranging from 32 to 39 year-old. This speaks well of some American Universities’ vitality and cross-pollination with the public sector.