Hermitage Essay

311 Words2 Pages
Hermitage Case 1. Give definition of activist investor and discuss pros and cons An activist investor attempts to force a corporation to make changes in management, board structure, investment policies, use of retained earnings, or other practices, often by introducing shareholder proposals or putting forward alternative directors. Some activists deliberately accumulate substantial stakes in undervalued companies to force changes that will increase the share price so they can sell at a profit. Others, such as long-time or majority stakeholders, may object to current management practices, prefer an independent board of directors, or want a voice in executive pay. While they seek improvement to the bottom line, they may also be committed to strengthening the company in other ways. Activist methods vary as well. Some wage public relations and proxy wars while others seek to implement their proposals through negotiation. In recent years activists have achieved a number of goals including increased respect for their power to effect change. 2. Describe in details investment strategy of Hermitage Capital Despite holding minority stakes in Russian firms, Hermitage Capital was very active, seeking changes in company charters, seats on boards, and changes in Russian legislation.The company founder thought the best protection against mis-governance in Russia is the press. And he saw a future in this activist approach. “My ultimate objective is to buy a position and then see the stock rise because the market will see that my presence will limit management’s ability to enrich themselves at the expense of investors. I would like to go from being a fighter to an insurance policy”. 3. Why do you think Hermitage Capital experienced problems? The Fund didn’t take into account that the legal system in Russia works differently than in Western countries and the
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