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Net Net: Promoting innovation and managing change

With solid results in hand, Third Point defends activism

Dan Loeb
Justin Solomon | CNBC

In a newly-released investor letter, Dan Loeb defended modern-day activist techniques, and revealed what appears to be a new long position in the Japanese automaker Suzuki Motor.

Detractors of mainstream activists are simply wrong, Loeb wrote in the letter dated July 31. Loeb highlighted Third Point's successful track record at installing talented CEOs, and inspiring figures like Japanese Prime Minister Shinzo Abe to encourage better governance and other improved management techniques.

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Third Point's flagship hedge fund, Third Point Offshore, is up 5.7 percent through July. With those results in hand, the hedge fund guru used the opportunity to take aim at those who dismiss the efforts of financial activists.

"Lately, a varied chorus of powerful union bosses, politicians and candidates, an asset management company executive, and a few ivory tower types, have asserted that activism is short-term in nature," Loeb wrote.

These same individuals think of activists as "'hit and run' investors who only care about making a quick buck while leaving a company and its employees in ruins," Loeb said.

"It might surprise people to hear that we agree completely that the sort of activism they describe is abominable," Loeb added. "Luckily, it does not really exist, and certainly not at Third Point."

The fund's securing of "visionary leaders" like Yahoo's Marissa Mayer, John Higgins at Ligand, and Sotheby's Tad Smith was one indication of that, he wrote.

Elsewhere in the letter, Loeb talked up the pharmaceutical company Allergan (where Third Point began investing in 2013, when it was still known as Actavis), and voiced support for the pending sale of its generics unit to Teva Pharmaceutical. He described the deal as a financial "home run" and its strategic benefits "equally impressive."

Loeb also revealed a position in the beleaguered Suzuki Motor Company, which he described as "undervalued."

Although the Japanese automaker has been harmed by a longstanding legal dispute with Volkswagen, its 56 percent stake in Maruti Suzuki, an Indian subsidiary with an attractive foothold in that market, should be a huge driver of value, Loeb stated.

In fact, the fund manager argued the combined value of Suzuki's Indian assets amounts to more than the company's entire market capitalization at current prices.

Third Point's offshore fund rose 0.8 percent in July, according to a separate investor notification—a respectable performance during a difficult month for other hedge-fund managers, like David Einhorn.

Correction: An earlier version of this story misstated the surname of Southeby's CEO.