Turbulent periods for the markets aren’t usually regarded as the best times for activist investors, but based on the packed crowd at the 13D Monitor Active-Passive Investor Summit in New York City on Tuesday, the business of activism is hotter than it has been in years. “I had to come late to the conference because I was so busy,” Darren Novak, JPMorgan Chase’s head of shareholder engagement and M&A capital markets for Europe, the Middle East and Africa, told DealBook. Third Point’s Dan Loeb disclosed in an investor letter that he had bought a stake in the consumer products giant Colgate-Palmolive Co. (CL), with an eye to persuading it to spin out its pet food business. And Starboard’s Jeff Smith publicly took aim at Salesforce Inc. (CRM) at the conference, declaring that the company had a “subpar mix of growth and profitability.” While volatile markets are often seen as bad for the kinds of moves that these hedge funds recommend, attendees at the conference see a plethora of undervalued companies to push. They are also benefiting from a securities rule change that requires companies to adopt universal proxy cards, making it easier for hedge funds to propose directors for shareholders to vote on. “Periods of rising tides hide a lot of problems,” said Caitlin McSherry, director of investment stewardship at Neuberger Berman. “When the tides go out, you start to see more problematic situations expose themselves. And we are looking to take advantage of those situations.”
Sachem Head Capital Management's Scott Ferguson said one of the toughest tasks faced by activist investors may be to replace a company's chief executive, but that the battle had been worth the effort at three companies where it owns stakes. Sachem Head invests with chemicals company Olin Corporation (OLN), International Flavors & Fragrances Inc (IFF), and US Foods Holding (USFD) and each one replaced its chief executive officer after Sachem Head engaged it. US Foods continues to seek a permanent replacement but seems to be close, Ferguson said Tuesday while discussing the three companies at the 13D Monitor Active-Passive Investor Summit. He pointed to Olin CEO Scott Sutton, who took over the top job in 2020, as being especially skillful, saying Sutton is the best CEO he has seen and praising Sutton's high impact in a short period of time. Ferguson also praised the company's plan for share buybacks, saying it was looking to buy back 20% of outstanding shares annually. Earlier in 2022, the company announced a $2 billion buyback program. Ferguson has scored a series of wins including a settlement earlier in 2022 with US Foods Holding Corp where his firm won three seats in exchange for dropping a proxy battle. The company's CEO Pietro Satriano also exited the company. Sachem Head said in a recent regulatory filing that it had made investments in FedEx (FDX) and Hasbro (HAS), both of which have had investors calling for changes this year.
Wex Inc. (WEX) advanced 2% after Impactive Capital pitched the stock at the 13D Monitor Active-Passive Investor Summit. Impactive Capital head Lauren Taylor Wolfe referenced Wex as a long idea earlier at the summit. Investors appear to misunderstand the effect that electric vehicles will have on Wex's fleet segment, Wolfe told CNBC in an interview after her presentation. "We contend the opposite," Wolfe said. "We think that they have an opportunity to grow revenue per vehicle by 70% and it's because they have the network effect." "Our view is Wex is going to thrive in an environment with electric vehicles, despite the market's contending that they might not," Wolfe said. Impactive Capital owned 2.13 million Wex shares as of the end of June, and is among the company's 10 biggest holders. Wex is scheduled to release Q3 results on Oct. 27.
On the morning of Oct. 18, shares in Salesforce (CRM) and Splunk (SPLK) surged over 7% and almost 4%, respectively, as Starboard Value LP founder Jeff Smith talked about the hedge fund's holdings in the tech companies at the 13D Monitor Active-Passive Investor Summit. Starboard has a stake of close to 5% in Splunk and reportedly plans to pressure the software maker to take steps to increase its stock price. During the summit, Smith said Splunk CEO Gary Steele is positioned to bolster the company's operations and that it could be a takeover target. Smith added that Salesforce, in which Starboard holds an undisclosed stake, is an attractive investment given that its growth and profitability mix lag behind its peers. He cited constructive talks with Salesforce leadership.
Starboard Value LP has a significant stake in Splunk Inc. (SPLK) and plans to push the software maker to take action to increase its stock price, sources report. Starboard's ownership interest is reportedly just under 5%. It often engages software firms that are attractive takeover targets or could benefit from operational and margin improvements. Starboard founder and CEO Jeff Smith will appear at the 13D Monitor Active-Passive Investor Summit on Tuesday and is expected to detail the hedge fund's thesis then, the sources state. Founded in 2003, Splunk makes software used by companies' information-technology and security operations to analyze data and monitor threats. Earlier this year, when Splunk was without a chief executive and its shares had plunged after a series of disappointing earnings reports, it attracted takeover interest from at least one strategic suitor: Networking giant Cisco Systems Inc. (CSCO) made a takeover offer worth more than $20 billion for Splunk, although the companies weren’t in active talks at the time and there's no sign that has changed. Splunk named Gary Steele as its new CEO in March after former CEO Doug Merritt exited the role late last year. The same week Steele was named, the private-equity firm Hellman & Friedman LLC disclosed it had taken a 7.5% stake in the software maker, in a big bet on both the company and him. That came after technology-focused private-equity firm Silver Lake made a $1 billion investment in the company last year to help support a transformation of the business. Splunk is nearing the end of a shift from a traditional software-licensing arrangement to a cloud-based subscription model. Last week, Splunk added two directors to its board, including a partner from Hellman & Friedman.
On Oct. 18, at the 13D Monitor Active-Passive Investor Summit, Impactive Capital managing partner Lauren Taylor Wolfe said the firm continues to engage with WEX Inc. (WEX) to boost its fortunes. Taylor Wolfe said Impactive Capital, a WEX shareholder since early 2021, has called on the company to take advantage of depressed valuations across the financial technology sector to make beneficial acquisitions. "Private and public company market valuations have come back down to earth and many payments companies are in desperate need of cash," she said. "We expect companies like WEX to be able to pounce on compelling acquisition opportunities in the coming years."
Insight Enterprises Inc. (NSIT), which helps clients with the critical but largely unsung work of digital transformation, is poised for a dramatic stock price jump as its revenue stream becomes more predictable, investment firm ValueAct's chief executive said. Mason Morfit, the firm's chief executive and chief investment officer, said the company's stock price, currently trading at $87.63, could climb to as high as $500 a share in the next five years. "We find companies that have the opportunity to transform into global champions by becoming better aligned with the mega trends in the economy, whether that's cloud computing, streaming television, or medical technologies, and the list goes on and on," Morfit said during a presentation at the 13D Monitor Active-Passive Investor Summit. The company has a healthy business and works in the growing cloud computing segment, two factors that should help distinguish it, he said, adding that Insight trades around 10 times earnings and generates a 9% free cash flow yield with growth in the high teens. This "presents a great return opportunity without any multiple expansion," he said. ValueAct, which traditionally owns roughly a dozen companies and prefers to stay behind the scenes, rarely presents its investment ideas publicly. Morfit said he was speaking out about Insight because it is broadly overlooked by the market. As Insight helps transform its partner companies, it is also transforming itself having hired a new chief executive earlier this year and having changed the bulk of senior management. For ValueAct, betting on the megatrend of digital transformation started when Morfit had a board seat at Microsoft (MSFT) years ago. While conventional wisdom might have suggested that companies like Insight could wither in the shadow of giants like Microsoft, this has not been the case as even Microsoft has sought partners with this specialized expertise, he said. There is a "huge opportunity for the vendors to have partners that can make their services come alive."
NEW YORK, Oct 18 (Reuters) - Activist investor Jeffrey Smith said on Tuesday his investment firm Starboard Value was currently involved with Wix.com (WIX.O), Splunk (SPLK.O) and Salesforce (CRM.N), and was engaged with management for ways to bolster valuations of these high-growth companies. Smith said the common theme among all three companies was that the level of growth they were promising had not translated into appropriate profitability and, therefore, value for its shareholders.
At the 13D Monitor Active-Passive Investor Summit on Oct. 18, Starboard Value's Jeff Smith said the hedge fund has taken a stake in Salesforce Inc. (CRM), pushing the company's shares up as much as 6.8% as the market opened in New York, marking its largest increase since July 27. He said Salesforce is lagging behind its peers due to issues translating growth into profitability but needs to do more to improve margins. "With Salesforce we don't think it's an issue of can they do it. It's a question of how focused the company is on the issue," Smith said, adding that the company's new leadership team is committed to addressing the issue. "This is good news. We're not banging our head against the wall. We just need them to get really competitive and try to be the best at this." He also confirmed that Starboard has taken a stake in Splunk Inc. (SPLK) and has seen opportunities in Wix.com Ltd. (WIX).
Starboard Value announced a stake in Colfax Corp. (CFX) and called the industrial equipment manufacturer undervalued. "The company is at an inflection point," declared Starboard founder Jeffrey Smith at the 13D Monitor Active-Passive Investor Summit on Wednesday. Colfax's stock price rose 3.55% in pre-market trading on the news of Starboard's interest. The company announced plans earlier this year to spin off its industrial and medical devices businesses into publicly traded firms following a strategic review of its operations. Smith believes that by improving operational performance through enhanced execution at MedTech, which will ultimately fuel a higher valuation multiple, Colfax can generate significant value for investors. Colfax, currently trading at $47.34, could trade closer to $76 in 2023 with an opportunity to trade near $94 the following year. Smith added that Starboard plans to lobby for changes at chemicals producer Huntsman Corp. (HUN), in which it owns an 8.4% stake and is valued at about $6.8 billion. Huntsman has augmented its portfolio mix and has strong businesses, but Smith says there is room to boost revenue. "The company is not getting credit for what it has done," he noted. "We believe this company is a good company." Smith said Huntsman could improve its valuation multiple by expediting revenue growth and increasing profitability, which should lead to more value for all shareholders. He suggested average annual revenue growth could exceed 5.5% rather than holding at less than 1%. Smith also said adjusted EBITDA margins could surpass 18% compared to 13% currently, highlighting Huntsman's differentiated products and barriers to entry, which make it a "compelling investment." Smith also talked about Starboard's investment in animal health company Elanco (ELAN), citing opportunities similar to its competitor Zoetis (ZTS). "We believe there is an opportunity to narrow the margin gap with Zoetis through operational improvements," he stated, although "execution has disappointed and credibility has eroded." Financial results have remained largely slack despite alleged productivity gains.
Jana Partners said Oct. 6 that Macy's (M) share price could double if the company separated its e-commerce business as customers make more purchases online. "Macy's could see an increase in its stock price by 100% if it followed the playbook of Saks," Jana Partners portfolio manager Scott Ostfeld said at the 13D Monitor Active-Passive Investor Summit. He did not say whether Jana owns a stake in the company. Ostfeld said Macy's online business could be worth approximately $14 billion. Macy's as a whole has a market valuation of approximately $6.9 billion. Ostfeld said Macy's could create a digital goldmine and delight investors who may now be betting that the company's stock price will decline, not increase, by selling it short. The stock is currently trading at $22.28 and has dropped 42% over the last five years. Ostfeld said the market isn't properly valuing the bricks and mortar retailer's digital operation and said a separation would be a real miracle on 34th Street, referencing the Christmas movie called "Miracle on 34th Street," where Macy's flagship store in Manhattan is located.
Macy’s (M) could make $14 billion if it sold its e-commerce business, according to Jana Partners, which appears to be urging Macy’s to follow Saks Fifth Avenue’s example by separating its bricks and mortar operation from its online business, according to reports mentioning the 13D Monitor Active-Passive Investor Summit. It’s not clear whether Jana has a stake in Macy's, but Jana estimates that Macy’s e-commerce division is worth at least $14 billion. Macy’s is currently valued at $6.9 billion. Earlier this year, Saks Fifth Avenue sold a stake in its e-commerce operation for $500 million and created a separate company for its digital business. “Macy’s could see an increase in its stock price by 100% if it followed the playbook of Saks,” Jana Partners portfolio manager Scott Ostfeld said at the 13D Monitor Active-Passive Investor Summit.
The "pandemic phase" of the coronavirus will likely come to an end when antiviral pills and kids' vaccines are available, according to Dr. Scott Gottlieb, former U.S. Food and Drug Administration commissioner. Gottlieb also told CNBC's David Faber in a "Squawk on the Street" interview from 13D Monitor's Active-Passive Investor Summit that another key development is that the Covid delta variant will have "moved through the country." He said that is likely to conclude around Thanksgiving. "I think those two things are going to be the bookend on the pandemic phase of this virus and we're going to be entering the more endemic phase, when this becomes an omnipresent risk but don't represent the extreme risk that it represents right now," said Gottlieb, who now serves on the board of Covid vaccine maker Pfizer. Gottlieb earlier told CNBC that the U.S. was unlikely to ever fully eradicate Covid.
Jana Partners has taken a stake in Macy's Inc. (M) and is calling for the company to spin off its fast-growing e-commerce business, according to sources. Jana Partners on Oct. 13 sent a letter to the retailer's board urging it to separate the online division, which has approximately $8 billion in annual revenue, the sources said. The retailer's e-commerce business has already drawn interest from firms that could invest in it in conjunction with a spinoff, some of the sources said. Jana thinks that a stand-alone e-commerce business would be worth a multiple of Macy's current market value, which stood at about $7 billion on Oct. 14 after a recent rally. Macy's shares have dropped significantly in the past several years, while the valuations of online-only retailers like Farfetch Ltd. (FTCH) and MyTheresa have climbed. Jana hinted at its interest in Macy's at the 13D Monitor Active-Passive Investor Summit in New York last week, suggesting the company should separate out its e-commerce business. Macy's, which also owns the more upscale Bloomingdale's brand, was hit hard last year by the Covid-19 pandemic, which forced the temporary closure of physical stores. Online sales, however, have spiked as more customers shop from home. This is at least the third time Macy's has been engaged in recent years. But in a sign of how much the retail world has changed due to online shopping and the pandemic, investors such as Starboard Value previously urged the company to unlock the value of its real-estate holdings.
At the 13D Monitor Active-Passive Investor Summit earlier this month, top investors including Carl Icahn, Jeff Smith, and Keith Meister discussed their investments and the broader market. Icahn said he thinks the battered energy sector is attractive, noting that dropping valuations make it an ideal time to buy. He also pointed out that the shift away from fossil fuels toward renewable energy will take a long time and "it's going to be a lot longer than people think." He also mentioned that shorting the current market would prove "very, very expensive," adding that he thinks "the stimulus is doing the trick." Jeff Smith of Starboard Value pitched Corteva and ON Semiconductor, sending both stocks higher. The investment in ON brings Starboard back to the semiconductor industry, where it has a lot of experience, and it comes in the middle of a CEO search. Keith Mesiter of Corvex Management explained his thesis behind Exelon (EXC), a utility stock, arguing that the stock and broader sector is undervalued. Corvex had previously disclosed a stake in Exelon worth more than $78 million at the end of the second quarter. ValueAct's Mason Morfit made a pitch for Citigroup (C).
At the 13D Monitor Active-Passive Summit earlier this month, ValueAct CEO Mason Morfit explained the firm's major bet on Citigroup (C), in which it has been building a stake since 2018. ValueAct sees Citigroup's stock reaching $80 per share in the near term and $150 per share in the long term. With the bank's shares down about 43% in 2020, Morfit said the financials are "safe and cheap" this year. Citigroup's institutional bank accounts for three quarter's of Citi's net income and has grown annually about 21% since 2015. The business is a "core driver of earnings power" with an "integrated platform enabled by Citigroup's irreplaceable footprint and network," according to Morfit. The institutional banking unit delivers $6 of earnings, growing 20% annually, and Morfit believes the business is worth $70 to $110 per share on its own. The other 25% of Citi's earnings comes from its global consumer bank, which Morfit said is an attractive set of franchises in North America, Latin America, and Asia. Morfit mentioned ValueAct's excitement over Jane Fraser taking the reins of Citigroup, becoming the first female head of a major Wall Street bank. Sources say ValueAct was "very disappointed" in Citigroup's performance under former CEO Michael Corbat, specifically that the bank missed key performance targets for returns and expenses that it had set for itself in 2017.
Carl Icahn is predicting an eventual recovery in the slumping energy sector but says that, for now, shareholders should exercise patience. "I'm not saying go out and buy energy stocks tomorrow," the billionaire investor remarked at Thursday's 13D Monitor conference on activist investing. However, he also pointed out that buying companies when they are out of favor — like the various energy companies poised for bankruptcy due to reduced demand during the pandemic — is a successful strategy. Three years from now, he joked, some investors may regret not grabbing up those companies at a steal when they could. The investor, whose net worth is estimated by Forbes at $16.7 billion, acknowledged that he does not follow the path of a traditional activist, who typically recommends ways to turn companies around and often wins board representation. “We've been really helpful at many companies,” Icahn noted, often by liberating them from incompetent management.
Starboard Value has made new bets on ON Semiconductor (ON) and agricultural chemical firm Corteva (CTVA), and anticipates margins could grow at each company, Starboard Chief Investment Officer Jeff Smith said Oct. 8 at the 13D Monitor Active-Passive Investment Summit. Corteva's stock price could advance as much as 90% and its margins could climb to 23% from 14.4% currently. Smith also saw opportunity for margin growth at ON and said it could become an attractive acquisition target and that the right new CEO could create a lot of value.
ValueAct Capital Management praised Citigroup (C) during the 13D Monitor Conference, saying its share price could double in the near term. Citi is currently trading at $44.91. The long-time investor in Citi called it the best institutional bank in the world and said the company is positioned for growth. Citi's share price could shoot up to $80 in the near term and rise more to hit $150 over time, said Mason Morfit, ValueAct's chief executive officer and chief investment officer. "The upside is very compelling," Morfit said. ValueAct has owned Citi since 2018.
Corvex Management's Keith Meister said Oct. 8 that the utilities sector is a reasonable place to invest and suggested Exelon Corp. (EXC) since it is inexpensive, well-positioned in its industry, and because he anticipates change at the company. "The whole space is cheap and Exelon trades at a deep discount," Meister said at the 13D Monitor Conference. He added Exelon to his portfolio during the second quarter and said the company's stock could increase by 30%. Meister noted that utilities are not affected by uncertainty around the Nov. 3 presidential election and offer defensive protection against factors that would inhibit growth. The company also could benefit as investors concentrate more on environmental matters and gravitate toward electric vehicles and away from coal power. Investors prefer pure-play regulated companies and there is uncertainty around the company's Exelon Generation, a provider of zero-carbon nuclear energy whose profitability is pressing on the company, he noted. Exelon's stock closed at $39.32 on Oct. 8 and advanced almost 2% in after-hours trading, following his comments at the conference. Corvex had a stake of 2.2 million shares at the end of the second quarter.
A top executive at Institutional Shareholder Services addressed the Securities and Exchange Commission's (SEC's) new rules on proxy adviser client relations during the 13D Monitor Conference. Cristiano Guerra said the new rules are unlikely to lead to big changes in his firm's interactions with clients and others. "The efforts to silence ISS is a proxy for silencing shareholders," Guerra said. He said favoring the views of one specific investor client over another in matters involving ISS recommendations would be professional suicide. "I trust my team, I trust our analysis, and I'm very comfortable with our track record," he said. ISS decided to move forward with its lawsuit against the SEC in August after the agency crafted a new rule that will mandate proxy advisers give a copy of their reports to corporations at the same time they issue them to clients. They also must inform clients if corporations intend to rebut their reports.
At the 13D Active-Passive Investor Summit, Starboard CEO Jeffrey Smith argued for his firm's bet on ON Semiconductor Corp. (ON). Smith said the stock is well positioned moving forward as most of its revenue is exposed to the automotive, industrial, and cloud power end markets. While ON's revenue was impacted by industry-wide volatility, the stock is trading at a deep discount to its peers despite having company-specific improvement opportunities. Smith added ON could be an attractive takeover target as well. Separately, Smith said that Corteva Inc. (CTVA), an agricultural products provider, had a potential share upside of 60% to 90%. Also at the conference, ValueAct Capital CEO Mason Morfit pitched Citigroup (C) as a long idea, noting that the bank could see a near-term share upside to $80 and $150 in the long term. He said the bank should fix or divest underperforming businesses. Engaged Capital CIO Glenn Welling pitched Rent-A-Center (RCII) as a long investment and noted Evolent Health (EVH) is an attractive strategic asset given the shift to value-based care, its technology infrastructure, and robust recurring revenue growth. In August, Engaged said it intended to discuss with Evolent's management and board possible moves to "unlock" the intrinsic value of the primary business. Meanwhile, Legion Partners Asset Management's Christopher Kiper pitched Bed Bath & Beyond (BBBY) and OneSpan Inc. (OSPN). He said Bed Bath & Beyond shares could potentially be worth $30 to $50 and that the company is in the early stages of "substantial transformation." Kiper said that OneSpan's stock price could have an upside to $42. Legion said it is continuing to weigh more options to "unlock value" for stakeholders. Corvex Management's Keith Meister contended that Exelon (EXC) could be worth 53% more than its current trading price, and Cartica Management's Teresa Barger pitched Brazilian paper producer Klabin SA (KLBAY). Ciam's Catherine Berjal recommended Ontex Group NV (ONTEX) as a long and said the company should combine with Domtar Corp.'s (UFS) personal care unit. Bluebell Capital Partners' Giuseppe Bivona pitched Mediobanca SpA (MDIBY), where it is currently demanding a strategic review. Gatemore Capital Management's Liad Meidar recommended Superdry Plc (SEPGY), saying shares should be trading twofold to where they are now given the depressed stock price. Land & Buildings Investment Management's Jonathan Litt reiterated his call for Apartment Investment & Management Co. (AIV) to stop a move to split into two and instead evaluate strategic alternatives. Carl Icahn said that at some point oil will increase and there may be a squeeze.
Jeff Smith, Starboard Value's chief executive officer, said agricultural science company Corteva (CTVA) and ON Semiconductor (ON) are both undervalued companies. Speaking at a virtual conference Thursday, Smith said the companies have a lot of options to improve their performance. ON may even become a potential takeover target, Smith said during the 13D Monitor Active-Passive Investor Summit. CEO Keith Jackson will be stepping down in May 2021, which presents ON with an opportunity to bring in a new leader to oversee necessary changes. Smith said he wants ON to shrink its manufacturing footprint, outsource some of its fabrication work and potentially explore a sale. Corteva completed a spinoff last year from DowDuPont (DD). Smith said Corteva has made some progress in recent years, but the improvements were not enough to bring margins and earnings in line with peers.
U.S. stock market exchanges reached their session highs on Friday after President Donald Trump tweeted that economic stimulus negotiations are still underway. Coronavirus relief measures have been "very effective" for the economy and the stock market, according to Carl Icahn, chairman of Icahn Enterprises (IEP). Speaking at the 13D Monitor Active-Passive Investor Summit on Thursday, the billionaire investor said some stock prices are ridiculously high, but going short on them will be a very expensive move. Stocks that are considered to be tremendously overpriced continue to rise, he said. "So basically, I think the stimulus is doing the trick," according to Icahn. "At this juncture, I'm net long because I believe that this stimulus is coming and it's going to continue, especially after the election."
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.