Thursday, March 27, 2008

The Deal: Did blogger Jackson help Icahn?

[Posted on March 27, 2008 at 3:42 PM]
By Ron Orol

Two months after Carl Icahn failed to have his nominee elected in a proxy contest at Motorola Inc. in 2007, YouTube video blogger Eric Jackson jumped into the fray. His activism strategy used a YouTube video he dubbed "Plan B for Motorola" and an Internet Wiki to attract support from other micro-investors like himself. Like Icahn, Jackson wanted Motorola CEO Ed Zander gone, much of the board replaced and a new head of Mobile Devices with a clear strategy.

When the company revealed major financial problems in its second quarter 2007 financials two days later, Jackson says his effort began receiving major support. He got the backing of roughly 150 investors with about $600,000 in shares, less than 1% but significant nonetheless.

"They didn't move quickly enough, so starting late last year, we started saying that the best course of action, given the extent of the problems in the company, was to break it up," Jackson says.

And while Icahn's two-year public prodding is certainly the major reason why Motorola decided Wednesday it will split into two independent, publicly traded companies, Jackson's novel approach to activism is lifting eyebrows. Anne Faulk, chief executive of Swingvote Inc. in Atlanta, says Jackson may be the vanguard of how shareholders and executives communicate with each other. Certainly, some of Jackson's goals -- having Motorola executive Ed Zander resign and seeing that the company divide into two units -- have been accomplished.

The same can be said of Jackson's efforts last year at his first YouTube activist campaign at Yahoo! Inc., which also has gone through serious changes since his insurgency began. Jackson sent out a "Yahoo! Plan B" YouTube video and later launched a "just vote no" campaign to persuade shareholders of the widely used Santa Clara, Calif.-based portal to expel its CEO, Terry Semel, from his chairmanship along with six others on the company's 10-person board. He also set up a blog, "Breakout Performance," a account and a LinkedIn Web site to spread dissent.

Semel later did resign, and now Microsoft Corp. has a $31 a share, or $44.6 billion offer on the table.

With the stock of Motorola still low at around $10 a share, don't expect Jackson to end his insurgency just yet. In February Jackson launched a $2 million activist fund, Ironfire Capital LLC. Even with few dollars behind him, corporations should beware of Jackson's YouTube "Plan B." - Ron Orol

See Breakout Performance
See Jackson's YouTube page
See the Motorola Wiki

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Relevant Comps for GeoEye (GEOY)

It's been a week since I launched my newest public activist campaign, this one aimed at geo-spatial satellite imagery company GeoEye (GEOY).

In general, the response on this blog, to article, and in discussions I've had with others has been extremely positive about GeoEye.

Some very smart and significant shareholders have exited their positions in the company in the last 6 - 12 months. A cause for concern about GeoEye now? No. Simply smart money exiting their very profitable positions in a company they've seen grow significantly over the last couple of years - not a reflection on where the company is now and the opportunities which lie ahead for it. One person commented to me on what a good company it still is.

The most common response to the campaign is how cheap the company is given what it's doing. Its forward P/E ratio for this CY is 12.99, it has $13/share in cash, and its Enterprise Value/EBITDA ratio is at 5.2. With a signficantly enhanced satellite (GeoEye-1) launching by August, the company will have a major driver of growth in the coming years.

Some didn't like the industry comps I previously provided to justify how cheap GeoEye was, especially Trimble Navigation (TRMB) because it is a positioning/navigation company, not a satellite company. Part of the problem in finding a relevant comparison for GeoEye is that its primary competitor, DigitalGlobe, is private.

However, 12.99x this year's earnings is cheap, when compared to an S&P500 average of 19.6x for this year.

And here's another way to figure out where GeoEye should be valued. What companies does GeoEye's board look at when setting executive compensation? Well, according to last year's proxy, they are:

1. Cubic Corporation
2. Input/Output, Inc. - now private
3. Measurement Specialties, Inc.
4. MTS Systems Corporation
5. Nanometrics Incorporated - now private
6. OYO Geospace Corporation

and - lo and behold

7. Trimble Navigation Limited

It turns out those companies have a trailing P/E average of 19.54 vs. 12 for GeoEye. If GeoEye attained that valuation, its price would rise to $45 from $27.

It should get there sooner than the August launch date of GeoEye-1, and rocket past that afterwards.

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Tuesday, March 25, 2008

Chicago Tribune: Icahn pressures Motorola

Suit seeks documents about hiring, strategy

By Wailin Wong Tribune reporter

March 25, 2008

Activist investor Carl Icahn cranked up the pressure on Motorola Inc. on Monday, suing the company to try to gain access to internal documents ahead of a May showdown over board seats.

Icahn, who owns just over 6 percent of Motorola, said he wants the Schaumburg-based telecommunications equipment-maker to provide records relating to the hiring of senior executives and corporate strategy, especially as it relates to its mobile devices business.

Motorola spokeswoman Jennifer Erickson said in an e-mailed statement the company hasn't received a copy of Icahn's lawsuit, which was filed in Delaware Chancery Court.

Icahn and the company are preparing for their second proxy showdown at Motorola's annual meeting in May. Icahn is running a slate of four candidates for the board, including Keith Meister, chief executive of Icahn Enterprises LP. The others are Frank Biondi Jr., former CEO of Viacom Inc.; William Hambrecht, CEO of investment bank W.R. Hambrecht & Co.; and Lionel Kimerling, a semiconductor expert at the Massachusetts Institute of Technology.

In an interview Monday with the Tribune, Icahn said Motorola wants "to keep [Meister] off for no real reason" and described the current board as a "fraternity," echoing the language he used in a letter to shareholders released Monday.

Icahn and Motorola have tangled repeatedly over his access to internal documents. Erickson said Motorola offered to provide records under a "customary confidentiality agreement, but Mr. Icahn chose not to avail himself of that opportunity and instead seeks to create further unnecessary distraction."

Earlier in March, Icahn asked for the documents, and Motorola's lawyers sent him a written rejection, prompting him to file suit. According to a copy of the letter, the company found his request to be "egregiously overbroad."

Icahn said in his Monday statement he wants to view documents related to Motorola's financial performance, personal use of company aircraft and the potential spinoff of its handset division. Icahn has long pressed for a breakup of Motorola, saying the value of the company would rise significantly if the cell phone unit were a separate company.

"You'd spin it off and it would certainly keep the brand," Icahn told the Tribune. "It's a great brand with great intellectual property. It just needs someone to run it properly."

Motorola said in late January it was considering shedding its handset division. In the meantime, Chief Executive Greg Brown has taken direct control of the ailing business and replaced many senior managers.

But Icahn expressed impatience at the pace of change and improvement."Now is the time for action, not more indecision," he wrote in his letter to shareholders. "It is therefore especially vital that we have the right people on the board to drive, guide and monitor this restructuring and spin off process through to completion."

Icahn chastised Motorola's board and management for "empty promises," saying they've only let the handset division deteriorate further despite pledging a turnaround at the 2007 annual meeting. In the last year, Motorola's stock has plunged 45 percent. It hit a new 52-week low of $8.98 per share Thursday. On Monday, Motorola's shares closed at $9.69, up 44 cents.

Eric Jackson, who heads a Florida-based Ironfire Capital, an activist investment firm and organized a grass-roots shareholder campaign against Motorola last year, said the plummet in the company's stock price to below $10 "was the tipping point for a lot of shareholders in terms of being frustrated."

"We're supportive of Mr. Icahn and the kinds of changes he's offering," Jackson said. "I'd be in favor of any significant activist shareholder at this stage, compared to just signing a blank check over to Greg Brown."

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CorpGov.Net: Shareowner Activist Promotion

From the March 2008

Eric Jackson, the consummate "new media" shareowner activist, is interviewed in Eric Jackson: shareholder activist talks up social media. (, 03/19/2008) His new fund, Ironfire Capital LLC, was new to me. He explains that "the quality of ideas matter more to other shareholders than the quantity of shares owned." .Hard costs for his "Plan B" for Yahoo! were a $30 webcam and a couple of JetBlue tickets to California. He is critical of a "color by numbers" approach. "No matter the company, their solution is: (a) put the company up for sale, (b) do a dividend to shareholders, or (c) do a stock buyback."

"The best activists -- and the ones who will do well in this environment and moving forward -- will come up with recommendations that suit the situation and obviously promise to deliver value." His next target is GeoEye Inc. More on that move at his blog. I wonder, would other activists like Andrew Shapiro, Richard Breedon, Carl Icahn, or even Warren Buffet do better if they honed their YouTube and wiki skills?

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Monday, March 24, 2008 Take-Two Activists Give Game a Bad Name

Cross post from today's

03/24/08 - 09:00 AM EDT

The Take-Two Interactive(TTWO - Cramer's Take - Stockpickr) saga continues, with Electronic Arts(ERTS - Cramer's Take - Stockpickr) having gone hostile with its previous $26 a share offer for the company that was made public on Feb. 24. The EA offer represented a 50% premium for Take-Two's shareholders. Yet, Take-Two's board and management team rejected the offer as "too low," especially in light of the pending April release of the next installment of their Grand Theft Auto video game franchise.

Take-Two has a history of a lurching stock price and financial and legal scandals.
Last year, it culminated in a sizable number of Take-Two shareholders openly revolting and seizing control of the company.

Back then, the video game publisher couldn't get its act together. The stock's price had dropped by 50% in the summer of 2006, going to $10 after financial and legal problems surfaced. Its founder admitted to backdating stock options, and discussions of a possible buyout with EA, which hadn't been publicly disclosed until a couple of weeks ago, fizzled.

Shareholders were understandably upset. And, in a remarkable moment of collective exasperation, several well-respected hedge funds and institutional investors banded together behind ZelnickMedia -- a "group of experienced executives who provide management expertise" according to its website -- to oust Take-Two's former management team and much of its board.

ZelnickMedia is not well-known for activist boardroom coups. Led by Strauss Zelnick, a formerly successful media executive at BMG Entertainment and 20th Century Fox, with offices in Santa Monica and New York, they won over the support of D. E. Shaw (9% holders in the company), SAC Capital (7.8% holders), Tudor Investment Corp., and even traditionally passive mutual fund company OppenheimerFunds Inc. (the largest Take-Two shareholder at the time at 24.5%) to say changing the status quo is much better than keeping faith in a management team and board which hadn't delivered for shareholders.

ZelnickMedia sold themselves to their supporters at the time as "corporate turnaround specialists." However, Strauss Zelnick soon admitted after he took control of the company that this turnaround assignment was ''the biggest thing we've done". The firm's previous wins were in selling the marketing rights of Time-Life to Reader's Digest for $91.8 million and selling the money-losing needlepoint cataloger Lillian Vernon -- two companies operating in industries an order of magnitude slower than Take-Two's.

Zelnick himself took on the Chairman role, with his colleagues Ben Feder as CEO and Karl Slatoff as EVP. For filling these three roles, the new board approved a pay package paying Zelnick Media $62,500 as a monthly management fee (or $250,000 per executive per annum, if you assume the three were paid equally although such a sum would be high for a Chairman). On top of this, ZelnickMedia had the opportunity to receive an annual bonus of $750,000 and buy a block of shares.

Yet, despite making executive changes, ordering new business plans for the different organizational units and holding town-hall meetings at which employees asked their new leaders whether they knew anything about the video games Take-Two made, ZelnickMedia has not been successful in repositioning Take-Two in the year since its ascension.

From March 29, 2007 (the date of the shareholder meeting at which the dissidents took control of Take-Two's board and management team) to Feb. 22, 2008 (days before the E.A. offer went public), Take-Two's stock returned -20.66% vs. -4.41% for EA, which about the same as the S&P over that time.

What's worse, however, is that they've given all activist investors a black eye with how they've paid themselves.

As mentioned, the Electronic Arts offer went public on Feb. 24th at $26 a share. That followed a previous, private offer from E.A. at $25 a share in early February. A week later, on February 14th, the Take-Two board approved a much higher compensation plan for ZelnickMedia (for the second time since the original employment contract was struck in March 2007). This time, ZelnickMedia gets additional stock grants worth $20 million at the current offer price if there's a change in control. Additionally, the three Zelnick executives who serve on the Take-Two management team get $208,333 a month (or $833,332 per executive per annum) and the potential annual bonus was raised 233% to $2.5 million.

ZelnickMedia's response to critics who say A) this pay package is outsized given the company's returns and B) is opportunistic given what they knew E.A. was contemplating is that they have been working much more at Take-Two than originally planned. Strauss Zelnick said they thought it was only a six-month engagement when they took it on. Curious then that the original terms of employment for Zelnick Media approved by the board specified an annual bonus.

Zelnick added that the fuss is much ado about nothing: "I'm a boy scout - everyone knows that about me". Well, unfortunately, actions speak louder than do-gooder words.

Why would Zelnick's supporters from OppenheimerFunds, D. E. Shaw, and SAC Capital on the board, who had backed him last year, approve such a high pay package? Well, none of these shareholders is actually on the board. Instead, the board is made up of insiders Zelnick and Feder, plus two ex-BMG executives, a former William Morris executive, and two pre-Zelnick directors. In other words, by a 5 to 2 count, this is a Zelnick-friendly board.

Activist investors need to earn a return for their shareholders, but it should be done through their investments not through executive compensation on top of their investments. In this case, ZelnickMedia's actions appear self-serving even if they were somehow legitimate.

They are also being short-sighted. They gained the support and trust of several large and respected hedge funds and mutual funds in taking control of Take-Two. Even if the E.A. buyout goes through, and these investors pocket a gain on it, I would be surprised if they weren't reluctant to partner up again with ZelnickMedia after observing these pay increases.

This story also suggests investors who join an activist coalition need to examine who will be serving on the boards of companies after a new regime takes over. Understandably, many investors would rather not take on the time requirements and potential legal liabilities of serving on a public company board. Without proper oversight, however, problems like the ones in evidence at Take-Two can happen.

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Thursday, March 20, 2008 GeoEye Beams a 'Buy' Signal to Investors

The following is a cross-post from, which appeared today.

Editor's Note: With this column, is pleased to debut Eric Jackson. Our newest contributor has led online activist campaigns in the past, and will share his latest investment ideas with our audience. As always, let us know what you think.

I built a position in satellite company GeoEye(GEOY - Cramer's Take - Stockpickr) over the last couple of months.

Initially, I wasn't anticipating launching an activist campaign aimed at the company, which provides space-based imagery to government and commercial customers. The stock has gone up 62% in the past year, and GeoEye seemed well positioned to announce a very positive quarter and year-end results, which it did last week.

I was attracted by the stock's incredibly low valuation relative to projected earnings and peer comparisons. Trailing P/E sits at a paltry 12.66, whereas larger competitors Orbital Sciences(ORB - Cramer's Take - Stockpickr) and Trimble Navigation(TRMB - Cramer's Take - Stockpickr) have trailing P/Es of 25 and 29, respectively. What's more, GeoEye is expecting to increase earnings by 20% per year for the next five years.

However, the market was cool to last week's results even though fourth-quarter EBITDA doubled to $15.9 million from $7 million in the previous year and revenue rose to $45 million from $42.2 million a year earlier. Why?

GeoEye has not released full EPS numbers, as it is waiting for the IRS to rule on how to account for an acquisition it made in 2007. The company promised to release complete numbers before filing its 10-K, which is due at the end of March. The delay is not entirely management's fault, as it is waiting on the IRS. However, the company could have anticipated the snag and should have clarified sooner.

Activism is not just for broken companies. It can be equally important for solid but undervalued or overlooked companies. GeoEye is a perfect candidate because it's been overlooked.

Therefore, I recently launched an activist campaign aimed at raising the value of GeoEye, using the tools of the Web. As I emailed a letter to GeoEye's Chairman, Lieutenant General James Abrahamson, and its CEO, Matthew O'Connell, I posted it to my blog, inviting comments and suggestions from other shareholders.

Reaching out to shareholders of Yahoo!(YHOO - Cramer's Take - Stockpickr) and Motorola(MOT - Cramer's Take - Stockpickr) in two campaigns I ran over the past 15 months, using blogs, YouTube videos, wikis, polls and Facebook groups, was particularly helpful in disseminating my message and soliciting suggestions from an army of similarly frustrated shareholders. I hope the same will happen with GeoEye and in future Web-based activist campaigns.

GeoEye is much smaller (with a $500 million market capitalization) and less well-known than Yahoo! or Motorola. Furthermore, I don't believe it requires a major reshuffling of the board or management. This is a solid company.

The stock's price has appreciated 62% over the last year, as the company has delivered operationally for investors and started to be more widely followed by a larger institutional base.
The board and management team have also shown that they can plan ahead and do the right thing for shareholders. Earlier this year, one of GeoEye's two satellites in orbit (the OrbView-3) failed. For most small companies with poor planning, this would have been disastrous. However, GeoEye had appropriate insurance in place. That settlement ($20 million) on the aging satellite ended up being more positive for shareholders than if the failure hadn't happened.

GeoEye's newest satellite (GeoEye 1) is expected to launch in August and provide significant new revenue-enhancing opportunities to the company's existing and future customers.

However, no company or person is perfect. GeoEyes clearly must take steps to properly reward shareholders by fully realizing the inherent value of the company.

Here is a summary of the activist suggestions I raised to GeoEye's Chairman and CEO in my recent letter to them.

Raise GeoEye's P/E ratio to be in line with its peers: At the moment, GeoEye's trailing P/E is only 12.66. Yet, the company has projected to grow its earnings at 20% a year over the coming five years. Competitors sell at trailing P/Es in the mid- to high-20s. If GeoEye sold for a P/E of 20, the result would be a 58% increase in the stock's price to $45.82. If GeoEye were trading at a premium to its peers, which I believe is warranted, of 40, its stock price would appropriately be valued at $62.62.

I believe that the market has failed to see the inherent value in GeoEye because the company has not sufficiently articulated its strategy moving forward. It's not enough to simply estimate to investors when GeoEye 1 will launch or provide timelines for GeoEye 2 (its next-generation satellite that won't be launched until 2011), for that matter.

Investors want to know what the company will provide to its customers better than its competitors and in a sustained fashion. They also want to know that GeoEye is unique and better positioned to deliver to a large and fast-growing market. This hasn't happened as effectively as it could, in my opinion. I believe that, with a much more focused and vigorous explanation of GeoEye's inherent value relative to its peers, the market would properly value the company.

Rectify the earnings delay: Despite strong revenue announced during last week's quarterly call with analysts and investors, the company's stock was immediately punished, falling to $28 from $33. The reason was the management team's inability to communicate GeoEye's 2007 EPS because it couldn't account for net operating losses from the acquisition of M.J. Harden Associates from GE in early 2007.

These days, the markets abhor uncertainty. Investors shoot first and ask questions later, sometimes when it's unwarranted, as is the case here. The current stock price appears to me to be a market overreaction. However, this is partly management's fault for failing to move more swiftly in 2007 to clarify this point. They need to get this information out to the market as soon as possible.

Get a better board with more skin in the game: GeoEye has a prestigious group of directors. Its chairman, Lt. Gen. James Abrahamson, formerly headed up Ronald Reagan's "Star Wars" project. James Simon, former Assistant Director of the CIA, is also a director. However, a disproportionate share of directors on GeoEye's board have government/military backgrounds. There is also a plethora of lawyers and accountants. Such backgrounds aren't objectionable in themselves (the government, after all, accounts for over half of GeoEye's revenue). But it is a concern that there are no directors who represent the perspective of GeoEye's commercial customers.

Additionally, I'm concerned about the low stock-ownership levels of several of the outside directors. In research I collaborated while at Columbia Business School, we found that no single governance characteristic mattered more to improving a company's share performance than the percentage of outside directors on the board who held meaningful equity stakes they had purchased themselves.

The solution to improving the board comes in two forms. First, the board needs to look for possible directors with a commercial background and seek to bring them in as quickly as possible. The Chairman and CEO need to do a full review of GeoEye's current outside directors and their stock ownership.

I do not believe stock holdings are the same as the stock that someone has dug into his or her own pockets and purchased. The two are different as motivators and as predictors of future stock appreciation. There are several GeoEye outside directors whose stock holdings likely have only come through grants and options paid to them for their service -- the equivalent of found money. That's not enough "skin in the game," in my view. I would like to see each of GeoEye's outside directors purchase at least $500,000 in stock within the next six months.

I would not be a shareholder in this company if we didn't believe GeoEye had a bright future. I expect the clarification of GeoEye's earnings before the end of the month will be a major catalyst for the stock. It should be appropriately valued at $45 today. It will be worth much more upon successful launch of GeoEye 1 later in August.

If it takes some activism to help unlock some of this unrealized value, I am happy to oblige.

At the time of publication, Jackson was long GEOY, YHOO and MOT.

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Wednesday, March 19, 2008

BloggingStocks: Eric Jackson: Shareholder Activist talks up social media

Posted Mar 19th 2008 4:09PM from BloggingStocks

by Tom Taulli
Filed under: Google (GOOG), Yahoo! (YHOO), Motorola (MOT)

No doubt, there are many shareholder activists. But with Eric Jackson -- who manages Ironfire Capital LLC -- he is a bit different. That is, he uses social media, like Google Inc (Nasdaq: GOOG)'s YouTube, to help with his campaigns against companies like Yahoo! Inc. (Nasdaq: YHOO) and Motorola, Inc. (NYSE: MOT).

Well, I recently had a chance to interview him:

Why did you setup your fund? What's your take on shareholder activism?

After last June's Yahoo! annual meeting, when they changed CEOs following a high "against" vote by shareholders towards the current board, several friends and supporters encouraged me to think about setting up a fund. Frankly, they and I were a little surprised what I had been able to accomplish owning only 96 shares of the company. Many people had told me it was a waste of time and I had no chance of gaining support for an alternate "Plan B" for Yahoo! But we showed that the quality of ideas matter more to other shareholders than the quantity of shares owned. My hard costs were negligible for the campaign: a $30 webcam and a couple of JetBlue tickets to California. Several people said: "You need to do this on a larger scale." Ironfire Capital will allow me to do that.

My take on shareholder activism is that it's going to continue and be an exciting new asset class unto its own. Last fall, some nay-sayers said the tightened credit markets would cause activism to go away, because companies couldn't pay out cash to shareholders as easily as before. Now, there are many smaller shareholder activist funds out there who follow a "color by numbers" approach. No matter the company, their solution is: (a) put the company up for sale, (b) do a dividend to shareholders, or (c) do a stock buyback. Those are all valid recommendations in the right situation, but if you advocate them at all times and with all companies, you have less credibility in the eyes of targets and shareholders. The best activists -- and the ones who will do well in this environment and moving forward -- will come up with recommendations that suit the situation and obviously promise to deliver value. Sometimes, they'll take a hard-line approach, but sometimes a softer approach can be effective (as we've seen in recent days with Harbinger and Firebrand being awarded board seats at the New York Times).

You've been innovative in using social media. What are some of the things you've learned?

It's never been easier or less expensive to express your point of view. With that said, just because you have an opinion doesn't mean that others will listen. Anyone who wants to speak out and attract supporters needs to spend a lot of time at it and make sure they can back up their arguments. But, once you have something to say, I found blogging and YouTube videos were very helpful in attracting attention to my messages. Using a wiki to invite comments and changes to a plan was also a very effective way of getting better ideas, and also making others feel more engaged in the process.

That said, not every social media outlet I tried drove more traffic to my campaigns. I like Facebook, but creating a Facebook group didn't seem to help bring incremental awareness, because anyone who joined the group was sent back to the blog or YouTube.

Your next target is GeoEye Inc. (Nasdaq: GEOY). Why?

I invest in a company because I believe it will be an outstanding investment. The first two companies I targeted (Yahoo and Motorola) were high-profile, but GeoEye isn't - its market cap is $500 million. But I believe my brand of activism using social media will work just as well if not better with smaller and less well-known companies. I expect many people will hear about this company and give it a look because of the activism.

GeoEye is a solid company; it's not broken. Due to the vagaries of the market and because management hasn't outlined the exciting story it has as well as it could, it happens to be severely under-priced. It delivers spaced-based imagery to government and commercial customers. It has a trailing P/E ratio of 12 when its competitors' are in the mid- to high-20s. So, if properly valued at a P/E of 20, the stock deserves to be at $45, not $28. But they also will be launching a new satellite this summer which will help drive new revenue from new and existing customers. Additionally, during their analysts' call last week, they weren't able to disclose full net earnings and EPS numbers because they're waiting on an IRS ruling for how to account for a 60 person acquisition they made last year. This is expected to be resolved and disclosed by the end of the month.

All that said, I believe this board and management team can benefit from some activism. Management needs to do a better job outlining the story and the opportunities in front of it to investors. That's part of the answer as to why they've been over-looked to date, I believe. Their board could be better as well. They've got some great people, but no one representing the commercial customer views. They also need to encourage their outside directors to dig into their pockets and buy some stock reflecting their confidence in the business. We'd like to see each one own a half a million.

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Tuesday, March 18, 2008

Next Activist Target: GeoEye (GEOY)

Today, I am announcing my next activist target: GeoEye (GEOY). They are much smaller and less well-known than my previous targets of Yahoo! and Motorola. Yet, they are a compelling value for a very strong business. Unlike Yahoo! or Motorola, I am not seeking a wholesale change in GeoEye's management or board. This is a fundamentally good company. That is why I am holder of the company's stock.

However, there are some important steps GeoEye can take to improve their performance and potential in the eyes of investors. At the moment, they sport a trailing P/E ratio of only 12.66 compared to their peers with a valuation in the mid- to high-20s.

GeoEye just announced a great year-end last week and yet the stock went down due to their failing to release full-year EPS and earnings until the end of the month as they are waiting on advice on how to account for a small acquisition they did last year.

Today, I mailed the attached letter below to GeoEye's Chairman and CEO.

I encourage you to reach out to me and the Breakout Performance community with your additional observations and suggestions on how this company can improve its operations and its perception by the market.

Lieutenant General James Abrahamson
Matthew O’Connell
GeoEye Inc.
21700 Atlantic Boulevard
Dulles, VA 20166

March 18, 2008

Dear Lieutenant General Abrahamson and Mr. O’Connell:

My investment firm is a holder of shares in GeoEye. We are writing to express some concerns we have about the company and hope that this letter can serve as the starting point for a discussion, leading to subsequent actions to help support an increase in value in the price of the company’s stock.

First, let me congratulate you both on the company’s success over the past year. The stock’s price has appreciated 62% and it continues to attract a wider following from institutional and individual investors. Operational results – as evidenced in last week’s earnings call – continue to steam ahead strongly.

The board and management team have demonstrated that you can move effectively in dealing with challenges, such as the OrbView-3 failure. The insurance settlement ended up more than compensating shareholders for that difficulty and showed that you could effectively scenario plan for the company. GeoEye 1 – your next satellite due for launch later this year – should prove to help power the company to even more success this year.

We believe this is not a broken company in need of restructuring and new people. Rather, we believe GeoEye is an undiscovered gem by investors. Once others truly understand the many positives going for GeoEye, we are confident they will reward it with a much higher stock valuation. You both, as well as your fellow directors and the entire management team, are responsible for ensuring that other current and prospective investors truly understand that potential.

Below, we outline the actions we believe are needed to achieve such a positive outcome.

- Raising GeoEye’s P/E ratio to be in line with Peers’

o The Problem:
§ At the moment, GeoEye’s trailing P/E is only 12.66. Yet, you have projected to grow GeoEye’s earnings at 20% a year over the coming 5 years. Competitors such as Orbital Sciences sell at a trailing P/E of 25.5 and Trimble Navigation has a trailing P/E of 29.75. If GeoEye sold for just a P/E of 20, the result would be a 58% increase in the price of the stock to $45.82. If GeoEye was trading at a premium to its peers (which we believe it deserves) of 40x, its stock price would appropriately be valued at $62.62.

o The Solution:
§ We believe that the reason for the market’s failure to see the inherent value in GeoEye is that the company has done an insufficient job in articulating its strategy moving forward. It’s not enough to simply estimate to investors when GeoEye 1 will launch – or your plans for GeoEye 2, for that matter. Investors want to know what you will be able to provide to your customers better than your competitors and in a sustained fashion. We believe that, with a much more focused and vigorous explanation of GeoEye’s inherent value relative to its peers, the market would properly value the company.

- Rectify Earnings Delay

o The Problem:
§ Despite strong revenues announced during last week’s quarterly call with analysts and investors, the company was immediately punished with the Stock falling from $33 to $28. The reason was your inability to communicate your 2007 earnings or EPS, because of not being in a position to know how to account for Net Operating Losses from a smaller acquisition done earlier last year.

o The Solution:
§ These days, the markets abhor uncertainty. Investors shoot first and ask questions later – sometimes when it’s unwarranted, as is the case here. We believe that the market is over-reacting. However, this is partly management’s fault for not moving more swiftly earlier in 2007 to gain clarity on this point. You state that you expect to file your 10-K on time by the end of the month (in 2 weeks). We urge you to get this information out to the market as soon as possible and not find yourself in this kind of situation again.

- A Better Board with More Stock Ownership

o The Problem:
§ We believe GeoEye has an esteemed group of directors and we appreciate their service to the company. However, there is a disproportionate share of directors with government/military backgrounds, as well as lawyers and accountants. We have nothing against these backgrounds (the government, after all, accounts for over half of GeoEye’s revenues) or professions. Our concern is that there are no directors who represent the perspective of your commercial customers. We believe this is a major opportunity for improving the oversight of the board. Additionally, we are concerned about the stock ownership levels of your outside directors. In research I collaborated on while at Columbia Business School, which was funded by McKinsey and Korn/Ferry, we found that no single governance characteristic mattered more to positively increasing a company’s subsequent share performance than the percentage of outside directors on the board who held meaningful equity stakes which they purchased themselves (the paper summarizing the study is here: ).

o The Solution:
§ The solution to improving the board and its positive impact on company performance comes in two forms:
· 1. We urge the board to look for possible directors with a commercial background and seek to bring them on to the board as quickly as possible.
· 2. We ask you to do a full review of your current outside directors and their stock ownership. We caution you to remember that we do not believe stock holdings are the same as stock which someone has dug into their own pockets and purchased as a motivator and as a subsequent predictor of future stock appreciation. You have some directors whose stock holding likely have only come through grants and options paid to them for their service – the equivalent of “found money.” We would like to seek each of GeoEye’s outside directors purchasing at least $500,000 in stock within the next 6 months. Purchasing $1 million in stock each would be better, but we recognize that each director’s personal financial situation is different.

We would not be a shareholder in this company if we didn’t believe GeoEye had a bright future. We believe the points outlined in this letter will allow you and other shareholders to recognize significantly more value in our stockholdings sooner than if you did not follow them.

We would like to arrange for a phone discussion at your earliest convenience to discuss this letter and next steps. We believe that, through constructive dialog, we will find solutions which benefit all shareholders.

Best regards,

Eric M. Jackson

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Thursday, March 13, 2008

Compliance Week: The Rise of Online Shareholder Activism

By Jaclyn Jaeger — March 11, 2008

Shareholder activists have always been a thorn in the side of companies. Today, however, thanks to the Internet, they are a sharper and more potent thorn than ever before.

What particularly pangs companies is the casual manner in which some of these activists have been able to gain recognition toward their causes; online tools, such as e-mail, blogs, video Websites, and electronic shareholder forums have all made activist campaigns much more well-organized and visible forces to be reckoned with.

Just ask shareholder activist Eric Jackson. In less than 12 months, he has managed to oust the chief executive officers of both Yahoo and Motorola with a few thousand dollars and series of well-timed mouse clicks.

In the case of Motorola, Jackson says, good timing and media attention really helped promote his cause. Only two days after his “Plan B” campaign was launched, which included getting rid of CEO Ed Zander, the $43 billion company announced a poor quarter. The stock dropped, “and that got the media’s attention for the changes we were advocating,” he says.

Also helpful was the support among the Motorola community that the campaign generated. “We had a lot of internal Motorola employees, as well as ex-employees, who supported our group and culture changes, because they were concerned that the company wasn’t moving in the right direction,” Jackson says.

In November, five months after Jackson began his campaign, Zander stepped down, “which is roughly the same timing as what happened at Yahoo,” he says. “However, the company still has a lot of problems. They haven’t moved quickly enough on all fronts that we had suggested to really address them. I think it will take a couple of years to really turn that company around.”

Jackson adds: “What that campaign … showed me is that a lot of companies are poorly run and, therefore, could be targets for an activist campaign.” To further promote his cause, Jackson in February launched his own investment activist firm, Ironfire Capital. “So I’m now going to be heading these campaigns more and more frequently.”

SEC Weighs In

That sort of pronouncement from Jackson won’t thrill many companies. And it gets worse: Ever-more activists are following Jackson and using the Internet to state their case. And in a perfect example of “if you can’t beat ‘em, join ‘em,” the Securities and Exchange Commission has adopted final amendments to federal proxy rules to encourage the creation of, and participation in, company-sponsored electronic shareholder forums.

The amendments, which went into effect Feb. 25, are “intended to tap the potential of technology to help shareholders communicate with one another and express their concerns to companies in ways that could be more effective and less expensive,” SEC Chairman Christopher Cox remarked at the Commission’s Nov. 28 meeting.

The amendments clarify a few housekeeping details, such as when a comment on a company-sponsored forum would constitute a solicitation subject to proxy rules, and whether forum operators could be held liable under federal securities law for any statements participants in the forum make. (Generally speaking, the answer will now be “rarely” for both concerns.)

Overall, the majority of comment letters received by the SEC expressed favor toward such electronic shareholder forums. “We believe that a system that can facilitate increased dialogue between investors and a company’s management helps to build investor confidence through increased understanding of the company’s policies and operations and management’s awareness of shareholder concerns,” Martha Carter of RiskMetrics Group wrote in one letter.

Carter went on to say that RiskMetrics opposed substituting such forums for the current means of presenting non-binding shareholder proposals in the company’s proxy statement. “While electronic forums are useful as a supplement to the current shareholder proposal process, they are not a replacement for procedures that have successfully been in place for decades,” she wrote. “Part of the value in allowing shareholders to vote on non-binding shareholder proposals is in the information that the proposals and, more importantly, the vote results convey to the company.”

Several other comment letters expressed similar concerns. As noted in a comment letter from the California Public Employee Retirement System, General Counsel Peter Mixon wrote: “CalPERS believes that non-binding shareowner proposals are too important to the corporate and shareowner community to be replaced with an unproven chat-room concept.”

Another comment letter by the Calvert Group, a $15 billion socially responsible investment fund, noted that electronic forums would not adequately replace the focus and structure that current advisory resolution processes allow, especially given that “an electronic chat room is an idea with a number of unanswered questions.”

The letter continued: “It is difficult to imagine a Web-based chat room providing a focused discussion or debate on an issue of importance. Such a forum would likely lead to unmanaged discussions that provide little guidance to corporate management or a board in regard to shareholder sentiment.”

In response, the final rule spells out that electronic shareholder forums are an additional, rather than a substitute, means of shareholder communication.

Glorified Chat Rooms

Many companies also worry that company-sponsored electronic shareholder forums will be nothing more than what is seen on a Yahoo Finance message board, where shareholders just complain and use the chat room as an opportunity to take potshots at management and the board, Jackson says. “Obviously, that would be a lost opportunity if that’s all that they were,” he adds.

Jackson says he hopes such forums will raise “real concerns and questions” that generate positive responses from management over investor concerns. “That hasn’t really happened yet. I hope there are some early success stories that will inspire other companies to follow suit.”

Jackson likens companies’ fears of electronic shareholder forums to the advent of blogs. “When blogs first appeared I think a lot of companies were worried that they couldn’t control the message and that you would have a lot of people getting on blogs and criticizing the company, and they didn’t want that to happen,” he says.

On the other hand, he says, companies that did embrace blogs—even the ones that were criticized—eventually gained a lot of credibility in the eyes of the users, because the blogs ended up leading to useful dialogue. “I think the same could happen here,” he says.

That doesn’t mean that companies should give in to every shareholder demand. “Just because you’re a shareholder doesn’t mean you have the right idea of how a company should be run,” he says. “I think companies are smart to be critical of the ideas that are brought forward to it” but still remain open-minded to ideas that have value.

That open-mindedness will be particularly beneficial as online shareholder activism continues to grow. In fact, Jackson predicts that future online forums will include not only questions and answers among companies and shareholders, but also include features like campaign-style political ads on sites like YouTube in relation to upcoming shareholder votes.

“It’s going to be exciting. I think there is going to be much more interactivity between shareholders, in general, but especially individual shareholders and larger companies that people certainly would not have thought possible five years ago,” he says. “I’m going to be interested to see—and I know the SEC will be, too—just how successful these early adopters are.”

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NY Times DealBook: Shareholder Activists Take to the Web

March 13, 2008, 6:50 am

Activist investors are stepping up their use of the Web to push for change at companies, Compliance Week wrote in a recent article.

The Securities and Exchange Commission seems to be acknowledging the trend: Last month, it adopted amendments to federal proxy rules intended to “encourage the creation of, and participation in, company-sponsored electronic shareholder forums.” These amendments may assist grass-roots activists such as Eric Jackson, who created a Web site where small Yahoo shareholders could press for an overhaul of the struggling Internet company.

The article credits Mr. Jackson with ousting the chief executives at both Yahoo and Motorola “with a few thousand dollars and series of well-timed mouse clicks.” Realistically, it took a bit more than that: Carl Icahn, the billionaire investor, publicly sparred with Motorola’s board for months, for example.

Under the new rules, company-sponsored Web forums may foster a meaningful dialogue among investors. Or they could become little more than “glorified chat rooms.”

The California Public Employees’ Retirement System, an influential voice in corporate governance issues, expressed this latter concern in a comment on the proposed rule changes.

Here is what CalPERS’s general counsel wrote:

CalPERS believes that non-binding shareowner proposals are too important to the corporate and shareowner community to be replaced with an unproven chat-room concept.

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Tuesday, March 11, 2008

CNET: Google-DoubleClick may bode well for Microsoft-Yahoo deal

Posted by Dawn Kawamoto Post a comment
March 11, 2008 2:04 PM PDT - CNET

With the Google-DoubleClick merger wrapped up Tuesday, Yahoo may face even greater pressure to find itself a buyout partner, according to Wall Street analysts and investors.

The Google-DoubleClick deal presents a greater threat to Yahoo's business of providing both Internet search advertising and display advertising, note analysts. And, as a result, Yahoo now has another issue to contend with, beyond Microsoft unsolicited mega-billion buyout deal waiting in the wings.

"The Google-DoubleClick deal provides further firepower to Microsoft to win over Yahoo," said Mark May, an analyst with Needham & Co. "Microsoft's bid price is the key driver to a Microsoft-Yahoo merger, but increasing competition from Google is the second factor. And within the broader category of competition from Google, the DoubleClick deal is one more factor."

DoubleClick will provide Google a strong entry into display advertising and transform it into more of a full-service advertising company with both display and search - an arena that previously differentiated Yahoo from its competitors, May said. As a result, it may weaken Yahoo's case for remaining independent.

Yahoo investor Eric Jackson, a shareholder activist hedge fund Ironfire Capital, notes it strengthens the case that the industry needs a stronger No. 2 to compete against Google-DoubleClick.

"It doesn't help Yahoo's management in any way who are still trying to seek out a white knight," Jackson said. "This doesn't present any other possible suitor for them other than Microsoft and raises the question of how Yahoo is going to better compete against a combined Google-DoubleClick on their own? Wouldn't they be better teamed up with Microsoft?"

A number of Wall Street and industry observers, as well as anti-trust experts, had largely been anticipating Google to land the DoubleClick deal and receive regulatory and shareholder approval.

"It's hard to see how Microsoft, or Yahoo, had been proceeding as if this deal (Google-DoubleClick) were not going to happen," said Derek Brown, an analyst with Cantor Fitzgerald.
"It's fairly logical to think that one of the reasons the deal was initiated in first place was because of Google's expected acquisition of DoubleClick. It's hard to see how there's a radical change in viewpoint now."

One analyst notes that Yahoo, ironically, got itself into its current predicament of greater pressure from Google by expressing an interest in acquiring DoubleClick years ago. That, in turn, put Microsoft and Google into a heated bidding war. But last April, Google announced it had won the battle with a $3.1 billion bid for DoubleClick.

And while the Google-DoubleClick deal may put Yahoo's business at greater risk, it could help grease the skids on the regulatory front should it ultimately do a deal with Microsoft, said anti-trust experts.

"I would expect the Commission to assess the Microsoft-Yahoo deal using exactly the same legality benchmark that it used in the Google-DoubleClick merger," said Luc Gyselen, an anti-trust attorney at Arnold & Porter's Brussels office. "In that case, the Microsoft-Yahoo deal strikes me as pro-competitive. It is indeed important for customers to have a few real alternatives to choose from. It does not matter all that much how many alternatives there are on paper. What matters is how effective the alternatives are in the real world."

Gyselen, who previously served in several senior positions with the Directorate-General for the Competition Bureau of the European Commission, noted that Microsoft's past troubles with the Commission should not affect any outcome in how its merger efforts are treated in Europe.

"Talking from my own experience, each merger or antitrust case is handled on its own merits. Therefore, I cannot imagine that Microsoft's past and current dealings with the antitrust part of the Commission's Competition department would create spill-over effects into the mergers field."

(Elinor Mills contributed to this blog)

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Wednesday, March 05, 2008

FINAlternatives: New Activist Hedge Fund Takes Its Fights Online

February 29, 2008

Move over, and put away your pens and billboards, Dan Loeb and Sardar Biglari! There’s a new activist hedge fund in town looking to take activism to a new forum: online.

Eric Jackson, founder of Naples, Fla.-based Ironfire Capital, this month launched the Ironfire Capital US Fund to invest in a concentrated portfolio of companies with low valuations growth potential.

Jackson, who last year launched campaign on video Web site YouTube to oust the leaderships of Yahoo! and Motorola, is betting on the Internet’s distribution capability to voice his concerns and criticisms about companies he deems as undervalued.

“Initially, we’re going to write letters and have private consultations with companies but if they rebuff our offers or suggestions, then you have to look at using online tools to make your views known to other shareholders,” said Jackson.

Jackson said his idea of using the Internet as an activist tool stemmed from the advent of political blogs, which have been effective in starting grassroots campaigns. Although he admits that the he won’t always be the biggest shareholder of a company—he owned only 96 shares of Yahoo, or a 0.00000007% stake—Jackson said it’s about putting out there the best ideas and waiting for support from other shareholders.

“What’s happening already, and will continue to happen, is we’re getting unsolicited suggestions from people about companies that warrant our attention. People feel like they can easily communicate with us whereas with most hedge funds, there’s a wall and the image that they portray is that they have all the smart ideas inside their firms and everyone else can stay away.”

The fund, which currently manages some $5 million in assets, is looking to raise $50 million by the end of the year. Investors who opt for a three lockup will be charged a 1% management fee and a 20% incentive fee and a 2% management fee for one-year lockups. The minimum investment requirement is $1 million.

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BloggingStocks: Hedge fund uses YouTube to get results

Posted Mar 4th 2008 1:00PM by Tom Taulli

Filed under: Google (GOOG), Yahoo! (YHOO)

Shareholder activists use a variety of tools to combat lagging companies, such as proxy fights, litigation and so on.

With the growth of social media, we are now seeing new approaches, and one of the innovators is Eric Jackson.

He is using Google (NASDAQ: GOOG)'s YouTube to confront a variety of companies, such as Yahoo! (NASDAQ: YHOO). In fact, he was a key factor in the company's shareholder meeting last year (example here). Keep in mind that Yahoo's CEO, Terry Semel, soon left the company.

Well, according to a piece in, Jackson now has his own hedge fund, called Ironfire Capital.

Jackson 's approach isn't completely hostile. In the early stages, he tries to work with a target, but if that doesn't work, he mobilizes the forces of the Internet. And as we've seen lately, that can be quite powerful.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates

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