At the 13D Monitor Active-Passive Investor Summit on April 16, Glenn Welling, head of Engaged Capital, said his hedge fund has tripled its stake in Rent-A-Center (RCII) since December. Rent-A-Center is now Engaged's largest position. He believes the company's stock should increase 30% to 90% this year as it refinances its debt and continues reducing operating costs. Observers note that Welling is betting on a company that may be excluded from investment by certain environmental, social and governance (ESG) criteria covering predatory lending practices, given that it targets customers with low or non-existent credit scores and aggressively pursues payments. Welling dismissed concerns about the company's leasing practices, saying its financial metrics lag large lenders, and stressed that customers are not locked into long-term agreements. Engaged is in the third year of its engagement with Rent-A-Center, and it won three director seats in 2017. Rent-A-Center's shares are up more than 30% so far this year.
Bill Ackman on April 16 discussed dealing with adversity at the 13D Active-Passive Investor Summit. "To dig yourself out of a deep hole, make sure you make progress every day. Don't look at the peak before. Just look up a few steps. Eventually you'll find yourself out of a hole," he said. He gave the same advice to people at his 25th Harvard reunion several years ago, Ackman said. People who attend Harvard and other top universities have "done fabulously well, but they are unprepared for life," he said. "Life is dealing with adversity—challenges in relationships, your health, your kids' health, you make mistakes, get fired," he noted, adding a bit jokingly, "You lose $4 billion," alluding to his losses on Valeant Pharmaceuticals International. Ackman continues to work on recouping his Valeant losses, and his Pershing Square Holdings is now up more than 40% this year—his best-ever start to a year.
NEW YORK (Reuters) - Corvex Management manager Keith Meister on Tuesday named Diamondback Energy Inc. one of the hedge fund’s top investment picks after the energy company bought a rival last year. “We think there is lots of value,” Meister said at the 13D Monitor Active-Passive Summit. He said he expects Diamondback’s management team will do all the right things to boost returns. Chevron’s planned acquisition of Anadarko announced last week marked a turning point for oil and gas exploration and production companies, Meister said. “I would not have pitched this idea one week ago,” he said, adding that the pace of takeovers is likely not over yet. “I think there is going to be a lot of activity” in the sector, he said. Diamondback acquired rival Energen, another Corvex activism target, in a $9.2 billion deal last year. Meister said Diamondback has still been underperforming, however. When Meister spoke about Energen last year, he said that investors need to be patient and noted that by waiting until Diamondback made its move, “the size of the prize went up.” Investors have not paid enough attention to the energy and production sector, Meister said “No one owns energy stocks, but if you do own them, you have to be in one place, the Permian basin,” he said, referring to the oil-rich region in West Texas where Diamondback has operations. Diamondback and rivals Pioneer Natural Resources Co. and Concho Resources will likely not be independent companies three to five years from now, he said.
NEW YORK (Reuters) - Activist investment firm Starboard Value has taken a new position in KAR Auction Services, the firm’s founder Jeffrey Smith said at a conference on Tuesday. He called the company’s valuation “compelling” at the 13D Monitor Active-Passive Summit. “We believe KAR is a tremendous opportunity,” Smith said, adding that he thinks there is plenty of room for margin improvement and expects that portions of the business can be spun off in the near term. Last year, KAR said it would spin out a salvaging business, allowing Starboard’s investment to focus on the company’s used car auctions. “They are not commodities, it’s not easily replicable,” Smith said. “They are not tubes of toothpaste.” The stock rose 6 percent in premarket trading after Smith spoke. Smith added that the total number of cars on the road have been increasing and that vehicles have been lasting longer. “That’s good for the used car market,” he said. KAR considered going private in 2012, Reuters reported at the time. The auto auction company had been taken private once before in 2007 in a $3.7 billion deal, and then went public in 2009. There had been confusion recently over whether or not KAR’s salvage business would be spun out. “That led to the opportunity for us to buy a bunch of stock,” Smith said. But KAR recently received a private letter ruling from the U.S. Internal Revenue Service deeming the spin-off as tax free and allowing the company to move forward with its plans. Smith also discussed the firm’s position in healthcare information company Cerner Corp where the hedge fund reached a settlement and obtained board seats last week. Smith said that a refreshed board, commitments to buy back more shares and to reach for more aggressive targets will serve the company well. The company’s stock price rose 10 percent last week when the settlement was announced. During the first quarter of 2019, Starboard was the most active activist investment firm, starting seven new campaigns that pushed for change at companies ranging from Bristol-Myers Squibb Co to pizza chain Papa Johns. Starboard manages roughly $5 billion in assets, according to a regulatory filing made last month. Starboard rose to prominence by throwing out the entire board at Darden Restaurants in 2014 and has won board seats this year at eBay, healthcare information company Cerner Corp. and Magellan Health.
Kar Auction Services, Instructure and Rent-A-Center were among the stocks that were pitched at the 13D Monitor Conference in New York on Tuesday. Here’s a rundown: Starboard Value CEO Jeffrey Smith announced a new position in Kar Auction Services, calling the company a “tremendous opportunity” that had an “incredibly compelling” valuation. Smith said Kar Auction is moving ahead with a spin-off of its salvage business, which he expects will serve a near-term catalyst for the stock, and that he saw value both in the spinoff and the former parent. He called Kar a “great business with secular tailwinds.” The size of the stake wasn’t disclosed, but Kar shares ended the day up 2.4 percent. Separately, Smith said that Cerner Corp. shares were “still cheap” despite a recent rally that’s taken shares of the health-care data company up more than 10 percent, an advance that came after the company reached a deal with Starboard over board seats. Smith said that the company’s margin targets were reasonable and achievable, and that it had the opportunity to improve its governance and leadership. According to Bloomberg data, Starboard owns more than 3 million shares of Cerner, or about 1 percent. Shares closed down about 0.7 percent. Corvex Management Keith Meister called Diamondback Energy, Concho Resources and Pioneer Natural Resources “must-own” takeover targets, saying he “would be shocked” if they were still independent companies in three to five years. He cited their exposure to the Permian Basin, and said that the Chevron-Anadarko deal could act as a catalyst for the broader energy sector. Corvex owns more than 3.5 million shares of Diamondback, and Meister said it had better growth and margins than its peers, estimating about $6 billion in Ebitda by 2021. Diamondback shares rose 0.9 percent on Tuesday while Concho closed up 0.4 percent and Pioneer gained 2.1 percent. Praesidium Investment Management Co-founder Kevin Oram said that Instructure could be worth twice its current valuation if it were to separate its Bridge and Canvas businesses. Such a move would unlock value, he said, adding that Bridge would be attractive to strategics. Oram said that the Canvas business alone could be worth between $2.5 billion and $3 billion, compared with Instructure’s current market capitalization of around $1.8 billion. The firm has a 5% stake in Instructure, according to a 13D filed on Monday. Shares of Instructure gained 4.1 percent on Tuesday, closing at their highest since July. Engaged Capital Founder Glenn Welling said that Rent-A-Center could return between 30 percent and 90 percent by the end of 2019, arguing that the current stock price "does not even come close" to fair value. Welling sees "significant near-term catalysts" in the stock related to margins and cost structure optimization, and said it was trading in line with its historical valuation over the past 10 years, as well as at a significant discount to peer company Aaron’s. Engaged owns more than 5.3 million RCII shares, or about 10 percent, according to Bloomberg data. Shares ended up less than 0.1 percent, but spiked after Welling began speaking.
Activist investor Praesidium Investment Management said Tuesday that it’s taken a new stake in cloud-based education software company Instructure. Praesidium manager Kevin Oram, who filed a 13D with the Securities and Exchange Commission on Monday, said that despite the company’s big investments in new business, its stock looks cheap. Oram detailed the investment from 13D Monitor’s 2019 Active-Passive Investor Summit in New York. Praesidium owned about 5%, or 1.8 million shares, of Instructure as of April 15, according to the government filing. Shares were up 6.3% Tuesday afternoon. Instructure is best known for its Canvas platform, which offers schools and universities a system through which professors and administrators can store student records, input grades and schedule courses. According to the company’s website, Canvas is used by more than 3,000 universities, school districts and institutions around the world. Activist investors often build positions in what they view as undervalued companies with the goal of advocating for key changes, though Oram added that Praesidium typically lobbies for changes in private discussions with management.
Pershing Square Capital Management CEO Bill Ackman attributes his huge comeback to years of studying his mentor, Warren Buffett. Although the hedge fund is up more than 40% year-to-date, Ackman is not actively raising capital. At the 13D Active-Passive Investor Summit, Ackman noted that "one of the most instructive things" from his career has been reading the legendary investor's letters from the Buffett Partnership, the fund he ran before Berkshire Hathaway (BRK-A, BRK-B). After several years of outperformance, Buffett told his investors in May 1969 that he would close the partnership, giving partners the option to take their cash out or keep their investment for shares in Berkshire Hathaway. "A bunch of people wanted cash and spent another 50 years seeing their therapists for one of the dumber decisions that they made," Ackman said. "Since 1969, Berkshire is one of the greatest investments of all time. I think it's instructive. And, I think what Mr. Buffett realized in 1969 is that being a long-term investor with short-dated capital is just ultimately going to lead to a bad outcome at some point in time." He said the mission at Pershing Square is to have a permanent capital structure, and the firm took a step in that direction by launching a publicly-traded fund in 2014 with the long-term plan to have a majority of capital in that vehicle. Pershing Square Holdings (PSHZF), the public vehicle, now represents 80% of the firm's capital.
At the 13D Monitor Active-Passive Investor Summit on Tuesday, Bill Ackman expressed concern about the lack of diversity on corporate boards. "I've actually have wanted to run a proxy contest with an all-female diverse, ethnic slate. I think it sends an incredible message and I think we'd win hands down," Ackman said. But recruiting diverse candidates, especially women, for a proxy context has been challenging, he admitted. "If you're a diverse candidate whether its gender, ethnic, or otherwise and you're interested in serving in an activist contest, get in touch with us," Ackman said.
William Ackman said on Tuesday he wants Automatic Data Processing (ADP) to succeed, but that he might return with a fight if ADP fails to perform. Ackman, whose hedge fund Pershing Square Holdings last month reported cutting its stake in ADP to a 7.2%, lost a proxy contest at the human-resources technology company last year. The investor congratulated the company for planning an analyst day in June and said he and other shareholders are looking forward to hearing how executives navigate a changed economic environment. ADP will benefit from recent tax cuts, and rising interest rates should help lift guidance, Ackman said at 13D Monitor's 2018 Active-Passive Investor Summit. "We are rooting for the company," Ackman said, adding, "If we are disappointed we will say, We look forward to seeing you at the next annual meeting." Ackman has had a tense relationship with ADP's CEO, Carlos Rodriguez. Since then, Ackman said relations have improved, and he described a four-hour-long dinner he had with Rodriguez. Ackman also praised the new CEO of Chipotle Mexican Grill Inc. (CMG), Brian Niccol. Ackman said he sees plenty of opportunity there as well, noting the restaurant chain could offer breakfast, dessert, longer hours, and drive-through options. Pershing owns 10.36% of Chipotle. Meanwhile, Pershing Square is again in the red in early 2018, but Ackman expressed optimism that a turnaround is possible. "I hope we are on our way back to rebuilding our record," he said.
Pershing Square's Bill Ackman said Tuesday that Newell Brands (NWL) was so afraid of losing a proxy fight that it made a kind of "deal with the devil" in appointing Carl Icahn's board picks in March, but quickly clarified that he "meant that in the most positive way." Ackman delivered his comments at the 13D Monitor Active-Passive Investor Summit in New York. "What Carl's doing here is he's basically been given control of Newell," Ackman said. "He's got five seats on the board or something like that: his son, a whole bunch of affiliates, not the kind of board I think this audience would elect for its independence necessarily." News of Icahn's board appointments at Newell last month came soon after he unveiled a 6.86% stake in the company and said he could seek a board seat. His designated directors are Brett Icahn, Patrick Campbell, Andrew Langham, and Courtney Mather. "They got [the board seats] by negotiation, Carl's style of negotiation, and just leveraging off the fact that another activist ran a full slate for the company," Ackman said. Newell has also been under pressure from Starboard Value, which is seeking to replace Newell's CEO and its entire board. "We do believe that there is incredible value at Newell," said Starboard CEO Jeff Smith at the conference on Tuesday. "Unfortunately, it's lost its way."
Engaged Capital has acquired a 6% stake in Apogee Enterprises Inc. (APOG) and is urging the company to end its acquisition spree, according to sources. Engaged believes Apogee, which counts New York’s One World Trade Center among its customers, is underperforming competitors, the fund’s Chief Executive Officer Glenn Welling said at the 13D Monitor Active-Passive Investor Summit in New York., and could be worth as much as $75 per share by February 2020 if it implements its recommendations. Apogee stock closed Monday at $41.37 in New York. Engaged Capital has held constructive talks with the company about ways to boost its performance, the sources said, and it also wants the company to redirect its free cash to buy back shares. Minneapolis-based Apogee, despite its core business being strong, has made a series of missteps, including several big transactions that it has failed to integrate properly, the sources said. Apogee traces its roots back to a single glass shop in 1949, and now counts New York's One World Trade Center among its customers. It currently operates in three segments serving the commercial construction industry, including architectural framing, glass installation, and custom picture framing.
At the 13D Active-Passive Investor Summit in New York on April 17, Blue Harbour Group CEO Cliff Robbins said Open Text Corp. (OTEX) is "mispriced and inexpensive" and that the Canadian Software company could be worth at least 50% more if it undertook a transformational transaction or sold itself. “This is a very high quality business,” said Cliff Robbins, Blue Harbour’s chief executive officer, at the 13D Monitor Active-Passive Investor Summit in New York Tuesday. “This team knows how to do deals and we’re going to help them.” Blue Harbour, which owns a 3.5% stake in Open Text, plans to help the company boost its U.S. investor base and push management to pursue buybacks and increase dividends. "There's always a potential strategic sale down the road," Robbins said, adding that the company has a strong track record of mergers and acquisitions and is sitting on about C$1.2 billion in dry powder for potential deals. "As their lead stockholder, we plan to work with them to get this money to work."
Hedge fund manager Mick McGuire says that Rayonier Advanced Materials Inc.'s (RYAM) stock price could triple if the company focuses on integrating a recent acquisition and slashing costs. McGuire's Marcato Capital Management is a longtime shareholder in the company, but he spoke about his stake publicly for the first time on Tuesday at the 13D Monitor's 2018 Active-Passive Investor Summit. Rayonier Advanced Materials, a chemical company which focuses on cellulose-based products, recently made a "very accretive acquisition" and there are plenty of "self-help" actions to help lift the share price, according to McGuire. Rayonier Advanced Materials finalized its acquisition of Tembec in late 2017. McGuire said Rayonier's stock price could rise to somewhere between $34 to $60 a share from its current level of $21.82 in about three years.
In an April 17 interview from 13D Monitor’s Active-Passive Investor Summit on CNBC's "Squawk on the Street," Starboard Value CEO Jeffrey Smith expressed optimism about his firm's investment in Newell Brands (NWL). Smith, who revealed in a recent filing that his hedge fund is seeking four board seats at the company, said, "We do believe that there is incredible value at Newell. It's a company with iconic brands...It's a great company [with] great employees. Unfortunately, it's lost its way." Investor Carl Icahn last month entered into an agreement with Newell Brands that gave him control over multiple board seats. "Carl and I necessarily don't see things that differently. We've had conversations about the company," Smith said. "We both think the company is extremely undervalued. We both think there are operational improvements that are needed...the difference in opinion right now is what's the best possible board for shareholders going forward."
Gender diversity in boardrooms was a hot topic at the recent 13D Monitor Active-Passive Investors Summit in New York. Pershing Square Capital Management's Bill Ackman said, "I actually have wanted to run a proxy contest with an all-female, diverse ethnic slate. First of all, I think it sends an incredible message and I think we would win hands down. I really mean that." He pointed out that it is difficult for him to recruit directors, particularly women, in the activist context. "I think as more women serve on activist slates, it will make other women more comfortable on activist slates. If you're a diverse candidate, whether it's gender, ethnic, or otherwise, and you're interested in serving in an activist context, get in touch with us," Ackman said. "What the shareholders can do is...make clear the fact that someone who hasn't served on a board before shouldn't disqualify them from being a credible candidate for a board. One way to make it difficult for people to break the glass board ceiling is to say one of the qualifications for serving for winning on an activist slate is that you have to have already served on a board. That kind of stuff creates barriers that are problematic." Meanwhile, Blue Harbour CEO Cliff Robbins noted that "when I'm sitting down now with a CEO before I invest...I'm asking them a bunch of questions—'Tell me what you think about gender pay equality. Are there opportunities for women and minorities in your company? Do you have a diverse board?'" He emphasized the importance of investors holding those companies accountable. He added, "When I'm calling up my CEO three months after we made the investment, in addition to saying, 'Where are we on this spinout? Where are we on the balance sheet? Where are we on the margins?' I'm saying, 'Where are we on that commitment you made to me to make the board more diverse?'"
ValueAct Capital said it has invested in asset management group KKR & Co, as the $16 billion activist investment fund deepens its reach into the financial sector. The holding brings together a San Francisco-based activist investor with the legendary leveraged buyout shop founded and still run by Henry Kravis and his cousin George Roberts in 1976. Shares of KKR were up more than 6 percent. "One of the oldest and most storied LBO firms that has operated through market cycles has built up a tremendous brand," ValueAct President Mason Morfit said at the Active-Passive Investor Summit. Morfit said ValueAct's current exposure to the stock is under 5 percent. "The company has 8 to 10-year locked up capital and generates a great management fee," said Morfit. "I think the future is quite bright." ValueAct had not previously disclosed its position in the company. ValueAct, based in San Francisco, owns major stakes in some of the most prominent U.S. companies, including software maker Microsoft Corp., media group 21st Century Fox Inc. and energy company Baker-Hughes Inc. Morfit, who is the No. 2 person at ValueAct behind co-founder and CEO Jeffrey Ubben, is on the board of Microsoft. The fund also has holdings spread across the financial sector, including a stake it built last year in investment bank Morgan Stanley. Morfit said on Thursday that he likes KKR's business at a time that investors are leaving actively managed funds in favor of both alternative investments and passive investments. Alternative assets have compounded at a high rate and Morfit says there is no end in sight for that trend with demand coming from Asia and the Middle East.
KKR & Co., the original Barbarian at the Gate, now has an activist knocking on its own front door. ValueAct Capital Management has amassed a stake in the buyout giant in an investment that puts KKR co-founders Henry Kravis and George Roberts in an unfamiliar position: Under an investor’s spotlight rather than holding the torch themselves. But while KKR built its name on a series of not-always-friendly deals in the 1980s, the relationship with Jeffrey Ubben’s hedge fund seems amicable. ValueAct has held friendly talks with the investing firm, including discussing the possibility of converting KKR from a partnership to a corporation, according to a person familiar with the discussions. The switch may be beneficial under potential changes to the U.S. tax code proposed by President Donald Trump, said the person, who asked not to be identified because the talks were private. KKR welcomes ValueAct’s investment, Scott Nuttall, KKR’s head of global capital and asset management, said Thursday on the firm’s first-quarter earnings call. “We have had interactions with them and they’ve been great,” Nuttall said. “We like having smart, long-term investors as shareholders.”
Jeff Smith, CEO of Starboard Value, said Tuesday he is preparing to potentially pick up the pieces of a broken Yahoo (YHOO). Speaking from 13D Monitor's Active-Passive Investor Summit in New York City, Smith explained that he has launched a proxy fight for Yahoo in case its board is unable to do what needs to be done. "They're going to feel the pressure to make sure they're doing the right thing for the shareholders in order to not get to the result of a change of board members," Smith said. "But we need to protect ourselves because if we get to the annual meeting and the company has not moved forward as they're supposed to — there's a question here as it relates to capability and credibility of the board members and management team in terms of running the process. If we get to the end, and they haven't been successful as it relates to getting the company sold — the core business sold — well we're going to need to pick up the pieces," he added. The ideal outcome for Yahoo, Smith stated, is for its core business to sell for "the highest possible price that they can get," but he declined to say how much he thought that should be. Smith has said he sees "a lot of opportunity" in Yahoo.
At a prominent activist investor conference on Tuesday, panelists appeared less optimistic about upcoming corporate board contests and focused on current holdings rather than presenting bold, new investment opportunities. “We have stopped holding our breath waiting on new activist campaigns,” Don Bilson, head of event-driven research at Gordon Haskett, said in a note ahead of the 13D Monitor Active-Passive event in New York. Hedge fund managers in attendance discussed the usual complaints about complacent boards and underperforming companies but seemed to acknowledge the increased difficulty in finding new opportunities. According to 13D Monitor data, the amount of money invested by activists in the first quarter dropped by more than 75% to $1.4 billion, down from $6 billion a year ago. Lawyers and executives from proxy advisory firms also agreed that proxy contests are increasingly settled ahead of a vote. “There are still about 30 to 40 votes but there are so many more fights” that are resolved with some concessions, said Okapi Partners President Bruce Goldfarb. The HFRI Event Driven Activist Index, a sector benchmark, is down 4.26% for 2016 through March. It gained just 1.15% for 2015 after rising 6.57% the previous year.
Blue Harbour Group CEO Cliff Robbins believes farm-equipment supplier AGCO Corp. (AGCO) will benefit from improved margins and an eventual uptick in agricultural spending. Speaking Tuesday at 13D Monitor's Active-Passive Investor Summit in New York, he said AGCO is performing strongest in the European farming equipment market and has growth potential in Brazil. In addition, he noted, AGCO's work to standardize some equipment engineering will reduce costs. Blue Harbour owns approximately 7.9% of AGCO's shares, manages about $3.2 billion, and generally prefers to discuss corporate changes with management instead of engaging in proxy fights or other aggressive moves.
Starboard Value’s Jeffrey Smith says replacing an entire board is often the best way to revive a struggling company, but that tactic is not always possible. A full sweep of a board “seems to work really well,” Smith said at 13D Monitor's Active-Passive Summit. He added that it helps activist investors earn trust with management, and lays the foundation for a true partnership. Starboard is currently angling to oust the entire board at Yahoo Inc. (YHOO), a feat it accomplished two years ago at Darden Restaurants Inc. (DRI). Smith just stepped down from Darden's board after 18 months of working to turn around the business. While a full sweep often works best, Smith said, he acknowledged that companies are much more ready to find solutions so they can avoid the embarrassment and disruption of a costly proxy fight. In addition to Yahoo, Starboard is pursuing six board seats at Depomed Inc. (DEPO), frustrated that the company rejected a takeover bid. “We are in the process,” Smith said. He added that Starboard may start other contests, but gave no further hints. “It will be a case-by-case basis.”
Cliff Robbins, CEO of Blue Harbour Group, which manages capital for institutional investors like endowments and pension funds believes when you invest in a company for two years or more, you need to invest in the management team. When deciding whether to invest in agricultural equipment maker AGCO, for instance, it was crucial to spend time with the CEO, Martin Richenhagen, and get to know his record. "We came to the conclusion that this gentleman was the type of man we'd want to back," Robbins said. "[He's] looking for ways to win. Right now, while business is a little soft, he's working on his margin profile, as he should be, to improve the margins in the business. I think he's open-minded to buying back stock, and he knows he has a very strategic asset, as well." Robbins spoke from the 13D Monitor Active-Passive Investor Summit in New York City, which focuses on shareholder activism.
Jana asks Qualcomm to consider spinning off its chip unit from its patent-licensing business and accelerate share repurchase program.
Keith Meister, Corvex Management, weighs in on the state of the activist investor and why activism does well.
Cheap gas and better weather helps Darden, but it's not all smooth sailing ahead.
Ed Garden, Co-Founder and Chief Investor of Trian Partners, discusses Trian's plans for DuPont.