T. Rowe Price takes activist role

Q&A

Recent takeover deals stir mutual fund giant

Q&a

June 08, 2007|By Laura Smitherman | Laura Smitherman,Sun reporter

Call them the accidental shareholder activists.

T. Rowe Price money managers have made headlines recently by weighing in on corporate buyouts. They have opposed deals, including the proposed buyout of Baltimore's Laureate Education Inc., when they say private equity firms are getting company stock for a steal. And they have encouraged deals when they like the price, including a $5 billion bid by media mogul Rupert Murdoch to buy Dow Jones & Co. Inc., which publishes The Wall Street Journal.

But this is not a concerted effort to become the Norma Rae of Wall Street, said Brian C. Rogers, chairman and chief investment officer at Baltimore's T. Rowe Price. This, Rogers said, is the equivalent of their hand being forced.

"We have an obligation in serving our investors to speak up and act up," Rogers said. "It was not a policy decision to say that we are going to become a more activist investor. In many respects, we're responding to the environment and the hand we're dealt."

Some extenuating circumstances did lead T. Rowe Price, the normally reserved manager of mutual funds and other investments, to agitate as shareholder.

One factor has been the sheer volume of private equity deals: A record was set in May with $115 billion in U.S. deals announced. For the year through May, $315 billion in buyouts were announced, or about three times the pace of the year before.

Another factor has been the increased focus on corporate governance, an undercurrent since the accounting and executive-pay scandals earlier this decade. According to a survey of proxy voting released this week, T. Rowe Price was more likely than other money managers last year to vote for shareholder proposals seeking to align compensation with performance.

In January, T. Rowe Price fund managers publicly criticized proposals for a leveraged buyout of Clear Channel Communications Inc. and a takeover of Cablevision Systems Corp. Then in March, fund managers came out against the management-led buyout of Laureate, which operates universities online and overseas. On Monday, Price officials said a sweetened bid for those shares still wasn't enough.

Rogers took the spotlight last week when he told the Financial Times: "Who's to say Rupert Murdoch is all that bad?"

Price is the largest outside shareholder in Dow Jones, and Rogers said the Bancroft family, which owns a controlling stake, should sell to Murdoch's News Corp. because he's offering a "fairly attractive" price for the stock.

Rogers isn't talking about the Murdoch-Dow situation anymore, after his comments aroused media attention. But he did agree to sit down for an interview with The Sun this week at Price's headquarters. He talked generally about the use of shareholder muscle - and issues raised by other shareholder activists that he could care less about. He also talked about the markets and his stock picks.

Private equity deals are on the rise. Is this good, bad, ugly?

The emergence of private equity is certainly not new. What transpired this cycle have been more contentious deal proposals and some cases where management is operating in tandem with the private-equity consortia. That's a relationship filled with conflicts.

If you are the head of a company and working with a private equity firm that's taking the company private, who is to say you will act in the best interest of shareholders? In some situations, including at Laureate, there has been some tension over that.

Mutual funds, normally considered passive investors, do seem to be more vocal.

I'm sure other fund organizations out there feel exactly the same way we do. ... After all, we have a fiduciary duty to our investors to help protect and grow the value of their investment, so I think if we didn't do this, we would be violating that.

What do you think of some recent shareholder proposals to force corporate disclosure of political contributions or to push environmentalist policies?

I have so many other factors I have to think of in terms of an investment that I don't really care about companies disclosing political contributions. I generally view those as something of a nuisance. What I would like to see is equal transparency on the part of some organizations that put forth these proposals.

And environmental proposals?

You have to look at that on a case-by-case basis. I find it intriguing that in today's world, you have companies like General Electric, General Motors and DuPont almost leading the way in Washington when the Senate can't get off its fanny to move on carbon limitations and on fuel-efficiency standards. It's remarkable that companies are actually behaving more responsibly. I think they see a great profit motive over the long term. I don't think they're being altruistic.

What's your outlook for stock markets?

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