Tuesday, May 15, 2007
ESL Investments disclosed to the SEC yesterday that it had acquired 15.2 million shares, or approximately 0.3 per cent of Citi’s stock, at March 31, 2007 (Citi is the new name for Citigroup; it was changed a few weeks ago). The value of ESL's stake is approximately $800 million. Edward Lampert manages ESL Investments which also controls Sears Holdings. According to Bloomberg, the "[the Citigroup investment follows an approach that has led ESL to take stakes in Kmart, AutoZone Inc. and AutoNation Inc. Like Buffett, Lampert invests in 'stable businesses with predictable income streams that have very strong brands . . . .''"
For those interested in reading further about the nature of, and issues associated with, hedge fund investment in public companies, I recommend Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control. For an examination of the benefits of such investment see Alon Brav et al. Hedge Fund Activism, Corporate Governance, and Firm Performance. The authors in the latter paper find that "activist hedge funds resemble value investors and that the announcement of hedge fund activism generates statistically significant abnormal returns, in the range of 5-7% for a 20-day window, with results that are robust for different buy-and-hold periods." If they are correct, expect Citi's share price to head up today.