Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Introduction

In April 2003, Robert Chapman, managing partner of hedge fund Chapman Capital LLC, ran a full-page “help wanted” advertisement in the Canadian national daily newspaper the Globe and Mail.

It was a color ad, and it called for the ouster of the CEO at struggling education and entertainment company Cinar Corporation. In the middle, Chapman placed a large photo of Cinar chairman Robert Després with a “Help Wanted, Replacement of Robert Després” sign in banner type directly below his face.

Després, at the time, was on vacation in Florida and appeared ill-prepared to respond to the ad. Chapman, a Cinar shareholder, wasn't surprised. A number of chief executives have felt a little confused and disoriented, perhaps even exasperated, after encountering Chapman. Others in Canada's financial community also began scratching their heads. Who is Chapman, and what exactly is he trying to accomplish with his newspaper ads and cross-border public agitation campaign?

Actually, Chapman had been urging the animation company's board for the past year to auction the business to the highest bidder—and Després was standing in his way. Després, according to Chapman, not only wasn't looking to find a buyer for the business, as many had anticipated he would, but he also appeared inept at governing it. After a series of rapid-fire questions in a phone interview, Chapman realized Després was unaware of key revenue figures. After that, Chapman moved his agitations into high gear with a public pressure ...