Monday, April 30, 2007

Citigroup (C) Execs Fear Activist Funds

According to reports from this morning, top executives at Citigroup (NYSE: C) are worried the company could become the target of activist hedge funds that could press for a break-up of the company. Activist could also push to force out CEO Chuck Prince.

The report said fears have been heightened following a successful push from The Children's Investment Fund to force a break up of ABN Amro (NYSE: ABN), which has led to a bidding war for the Dutch bank.

Many think Citigroup is too big to become an activist target.

Looking through the list of holders there are no "usual suspects" of the activist hedge fund variety that hold any meaningful position. In the top 25 holders there are two, Morgan Stanley and T.Rowe Price, that have been involved in activist situations recently. Neither are activist funds, but have tried to push for changes. Morgan was looking for changes to the share structure at the New York Times (NYSE: NYT) and T.Rowe Price has opposed mergers at Diversa (Nasdaq: DVSA) and Laureate Education (Nasdaq: LAUR). Morgan Stanley owns a 1.34% stake in Citigroup and T.Rowe Price owns a 0.7% stake.

The top five holders of Citigroup are Barclays (4.44%), Price Alwalled Bin Talal (4.44%), Capital Research and Management (4.41%), AXA (3.49%) and State Street (3.1%).

Ex-CEO of Citigroup Sanford Weill owns 16.6 million shares or 0.34% of Citigroup.

Looking at the ABN situation, The Children's Investment Master Fund only held about 1% of ABN AMRO when they successfully pushed for a break-up at the bank.

Another scenario where a relatively small holder successfully pushed for changes at a large company involved Home Depot (NYSE: HD). Relational Investors owned just 0.64% of Home Depot when they successufully pushed for changes at the home improvement giant, including the ousting of CEO Bob Nardelli. Relational Investors was also awarded a board seat at Home Depot.

History has shown that it does not take an enormous stake in a company to successfully push for changes especially if investor sentiment is with the activist, which with Citigroup appears to be the case. Citigroup executives might be right to fear activists.

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