While many investors reacted positively to the news that Elliott Management took a stake in Marathon Petroleum, Jim Cramer remained cautious.
Activist investor Paul Singer's Elliott Management has indeed launched many successful campaigns in the past, including Cabela's and CDK Global. However, for Cramer, his long term memory could not shake off its disastrous involvement of energy company Hess.
"As of the end of September, Hess remains Elliott's third largest position, and they're Hess's second largest shareholder, but to use less diplomatic language, this investment has been disastrous," the "Mad Money" host said.
Elliott Management is among the best in the business, Cramer said. However, things can still go wrong, even when there is a smart activist firm pushing the company to unlock value.
Elliott announced a 4 percent stake in Hess in January, 2013 when the stock was in the low-to-mid $50s. Initially, the investment was a huge success, and the stock spiked to $105 by July of 2014. If Elliot had sold its stake at that point, that would be the end of the story.
Instead, it held on to the investment. As the price of oil collapsed, so did Hess's stock price. It released a letter that claimed the stock was undervalued because of lack of focus and poor execution, and argued that Hess should sell more assets to unlock value.
In the next few months Elliott engaged in a public tiff with the company's CEO John Hess with open letters. As this was happening, Hess announced it would transform into a pure play exploration and production company. The company finally agreed to changes and reached a deal with Elliott to give the activist fund three of the company's 14 board seats.
From that point on, it seemed to Cramer that Elliott was pretty much in control and sales increased. However, just a few months before the price of oil peaked, Hess sold off its retail business to become the pure play on oil and gas.
According to Cramer, it was literally the worst possible time.
Even worse than selling off important divisions at a bad time, the company also was buying back stock aggressively at much higher prices than it could have gotten if it just waited.
"Elliott Management's debacle with Hess is very enlightening, because at the time it seemed like Elliott knew what it was doing, but a couple of years later it became clear that they had put Hess in a really poor position to deal with the huge sell-off in oil," Cramer said.
So when it comes to Elliott and Marathon Petroleum, Cramer reminded investors to remember that even the best activist can be wrong.
That doesn't mean the stock is a sell, because he actually thinks Marathon is terrific. It just means that Elliott's pressure is not always a good thing.