Transocean Deal Shows Rising Clout of Activist Investors

Score another victory for Carl Icahn.

With the Transocean LTD (NYSE: RIG) deal announced yesterday (Monday), Icahn has once again shown why he's considered a master among activist investors.

The concessions he won from the world's largest offshore rig contractor include a boost to Transocean's dividend from $2.24 to $3 a share, subject to approval at next year's annual general meeting.

Transocean management also agreed to support Icahn-backed director Samuel Merksamer's re-election to the board, as well as the election of another Icahn pick, Vincent Intrieri, at next year's meeting.

Paired with the proposed reduction of the total number of board members from 14 to 11, the changes would give Icahn even more influence over Transocean's top management.

As usual, Wall Street smiled upon Icahn's triumph; Transocean stock went up 3.59% to $55.37 yesterday.

"I believe that Transocean is now on the road to realize its great potential," a clearly thrilled Icahn said in a statement. He also tweeted: "Grt news for Transocean and activism today."

Transocean also announced it will form a Master Limited Partnership that the company said would provide "financial flexibility." Because MLPs pass through all their profits to shareholders, they offer high yields and certain tax advantages - all the more pleasing to an activist investor like Carl Icahn.

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Transocean: A Textbook Case of How Activist Investors Operate

Icahn started working on Switzerland-based Transocean back in January, using his position as Transocean's third-largest shareholder. (According to his most recent disclosure, he holds 6% of the company's stock.)

Icahn characteristically launched his effort with a laundry list of criticisms, saying that Transocean had engaged in "ill-advised mergers, employed unsuccessful development strategies and squandered the substantial cash flow."

But at the Transocean annual meeting in May, shareholders voted down his proposal for a dividend increase to $4 and rejected two of Icahn's three board nominees.

Still Icahn continued the fight, certain he could wring more value out of the stock and improve the company's operating efficiency.

His cause may have gotten a boost from Transocean's excellent Q3 earnings, in which the company reported more profit than expected thanks to increased demand for its rigs as well as higher rates on its newer contracts.

With the company in better shape, management may have felt more comfortable with doing what Icahn was asking.

So instead of again fighting it out at the 2014 meeting, Transocean management will be recommending Icahn's positions to shareholders.

"After fighting Icahn tooth and nail this spring and largely winning, Transocean has now curiously yielded to additional demands," Scott Gruber, an analyst at Sanford C. Bernstein & Co., wrote in a note to investors. "Clearly the company feared another battle in 2014."

What Carl Icahn's Moves Means for Investors

For Transocean investors, Icahn's win will put more money in their pockets via the higher dividend, as well as a higher stock price. And longer term, adopting some of Icahn's suggestions could even make the company more competitive.

And in the bigger picture, it's just the latest example of activist investors at work in the markets, something we at Money Morning have been telling you about for some time now.

Retail investors need to stay tuned to activist investors like Carl Icahn because they almost always affect the stock price of the companies they target - usually pushing share prices up, like with Icahn's recent involvement with Apple Inc. (Nasdaq: AAPL).

Figuring out where activist investors might strike next is not necessarily easy, but the stocks they target do share some key characteristics.

Here's what activist investors like Carl Icahn look for in a stock - and why it's likely we'll see a lot more activist investing in the months ahead.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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