Oaktree Capital Management have recently decided to cease negotiations with toymaker Jakks Pacific Inc (JAKK.O).
Oaktree were attempting to negotiate their way through a standstill pact – a defence of a takeover by a hostile bidder, in which the bidder agrees to regulate and hold back his assets upon taking the company over, with the target firm aiming to repurchase shares after the transaction.
Oaktree, having offered $20 a share, put a great deal of pressure on Jakks Pacific, and in response, the firm adopted a poison pill takeover defence in March. Their shares remain poised around the $18 mark.
Oaktree is led by Howard Marks, the Wharton educated co-founder of the global investment management corporation. His memos make great reading, and are available to the public here. In these memos, Marks dispenses beautifully self-evident investment wisdom, and his firm, which he still presides over in his role as Chairman, continues to go from strength to strength.
Their investment strategy is predicated upon long run positions based on fundamental value criteria. Marks thinks, and the other members of his firm agree, that such a strategy is the only way in which long-term investment success is virtually guaranteed. Other options for abnormal profits, quirky and technical though they often are, often contain inherent flaws, such as an underestimation of catastrophic crashes, which models often fail to account for (see Long Term Capital Management’s fall in the tech bubble around the millennium).
Such a strategy, and such an eloquent leader, has drawn quite a following over the years, and with ~$82 billion worth of assets under their control, this private equity firm has many reasons to be happy.
Nevertheless, the jury is still out as to whether their backtrack with Jakks Pacific is an astute decision. At the very least, what was becoming a prolonged debacle is now over, and Oaktree can focus its attention on more profitable avenues.