T. Rowe Price takes activist role

The Baltimore Sun

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?

If you look at all the stock buyback activity over the last year, it is large enough in magnitude to have bought the 100 smallest companies in the S&P; 500. So the liquidity position of the U.S. and global economy is really super strong. It's money looking for an investment home, and whether it's a private equity fund or in a mutual fund or in a college savings account, there are a lot of investors out there with a lot of money, and you have a pattern of reduced share count across the world. So that's a very favorable supply and demand position.

The "R" word has been raised recently as slower gross domestic product growth prompts talk of recession. What do you think?

I sit around reading The Sun, and I see articles on gas prices. I see articles on concerns over real estate values. I see the never-ending series of articles on rising electricity bills. And I think, how can the average consumer in our market be feeling great about his or her life right now? And some of those things are going on around the country. So it seems to me, at some point, that's going to lead to some deceleration of economic growth.

If you were dispensing advice to an investor, what stocks would you recommend?

I'd say look at something like GE. Look at something like Johnson & Johnson. Look at something like American International Group. Look to large-cap companies with really good balance sheets because that is exactly where the action has not been. I'm always interested in looking where the action has not been.

I know you don't want to talk about Dow Jones, but I have to ask about your outlook for newspapers in general. I know Price is one of the biggest investors in Tribune Co. (owner of The Sun).

You have to look for different ways to deliver a product, and that's what companies are increasingly doing. For heaven's sake, The New York Times has a great Web site; you could almost argue for shutting down the paper and doing it all electronically. Maybe in 20 years it will all be electronic, but at the same time people still want content. If you have good content and a good product, people will pay for it.

People have been saying that newspapers will go the way of the dinosaur since I began my career ...

I think reports of your death are greatly exaggerated, to quote Mark Twain.


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