Since most hedge funds get paid based on their returns for the year, managers who do not want to underperform often turn to shareholder activism as a way to increase shareholder value and ultimately boost their returns.

Stockpickr tracks the latest activist situations so you can learn to piggy-back off of the best managers around. This week we focus on Axcelis Technologies (ACLS).

Sterling Capital is suggesting to Axcelis Technologies that they sell off valuable assets and complete a share buyback in order to maximize shareholder value.

Here's why.

On Feb. 4 and Feb. 11, 2008, Japan-based Sumitomo Heavy Industries made a proposal to acquire Axcelis at a nominal premium of $5.20 per share.

Within a week’s time, Axcelis rejected SHI’s offer citing that the offer was not in the best interest of shareholders. The lead director of Axcelis’ board of directors said, “SHI and TPG appear to be timing their unsolicited proposal to reap all of the benefits of the investments Axcelis has made in developing new products over the past several years, leaving Axcelis shareholders with inadequate value in return for that investment. In addition, the proposal ignores the value SHI would obtain by acquiring full ownership of SEN, a Japanese joint venture Axcelis has with SHI.”

On Mar. 10, SHI and TPG came back and offered $6 per share for Axcelis. However, the board again reviewed this offer and decided that it was not in the best interest of shareholders to accept the new sweetened bid for $6 per share.

At the time, Axcelis management highlighted two key points, which specifically cited why they rejected the $6 per share offer:

First: “Optima HD products are demonstrating in head-to-head manufacturing that they are more productive than competitive systems. The upside of these new products is just beginning to be realized. Axcelis is recognizing revenues from Optima HD products for the first time in the first quarter of 2008. Even modest gains in market share will result in significant improvement to Axcelis' financial performance.”

Second: “As a 50% owner of SEN (the joint venture between Axcelis and SHI), SHI uniquely understands the significant commercial and operational synergies that could result from a combination of Axcelis and SEN. There are meaningful financial and operational synergies to be realized in a "one company" strategy.”

As shares of Axcelis continued to sink lower and lower, and delays in Axcelis’ Optima HD products continued, on June 6, Axcelis management and SHI entered into a confidentiality agreement with respect to discussions between the parties.

This was followed by two losing quarterly earnings reports.

Sterling Capital, which owns about 11.3% of Axcelis shares outstanding, is now taking a very active approach to shares of Axcelis, which are now trading at $0.60 cents or so. Since late November directors and mangers inside Axcelis have bought back almost $250,000 dollars worth of common stock in the open market.

Other Recent Activist Moves

Steel Partners increased its stake in Rowan Companies (RDC) by 1,500,000 shares. Steel Partners now owns almost 7,500,000 shares of Rowan and 2,500,000 call options.

Southeastern Asset Management changed their filing status with Texas Industries (TXI) from “passive investor” to “active investor.” Southeastern owns about 9.5% of Texas Industries.

Posted on Dec. 31, 2008