Hedge Fund Activism: A Clinical Study of the French Company Atos Origin

Abstract

Over the period from October 2006 to May 2008, Atos Origin, a French information technology company, was the target of two activist hedge funds, Centaurus and Pardus. This article investigates in detail how the activists initiated their actions, how the management organized its defence and how both were received by the market. We find that, although Atos looked like an attractive opportunity, the funds failed in their primary objective, the sale of the target. In fact, the chairmen of Atos succeeded in discrediting the two hedge funds by taking support on the French context, not particularly prone to and sometimes even hostile towards shareholder's interests. Our findings suggest that this context can create a strong support to managers' entrenchment when facing activists. We also show that the success/failure classification used in large-sample studies, and based on officially stated goals, bears a considerable risk for misinterpretation. As our case shows, those objectives can not only change throughout the activism process, but may also be disclosed in different (and not exclusively official) ways. Relying solely on stated goals can significantly distort the overall judgement on the success of activism.

This paper was presented at the 8th Governance International Conference, Florence, Italy, 2009 and French Financial Association Annual Conference in Brest, France, 2009.

Keywords: Corporate Governance, Activism, Hedge Funds, Corporate Defences, Entrenchment

JEL Classification: G23, G34