Connoisseur of the untold stories on Wall Street, skewed toward activist hedge funds

Major Activist Newsletter Teaser: Blue Harbour Profile Page

Added on by Lee Ho Fook.

This is just a quick outtake from a fund page in the Major Activist Newsletter. Feel free to email us for a list of all the funds included in any of the newsletters. 

Blue Harbour Group ~ Founded 2004 | Fund market value $3.3bn

Clifton Robbins takes a constructive activist approach, only investing in companies where management is receptive to his ideas. He got his MBA from Stanford in ’84 and has an M&A and private equity background.

New 13D Positions

No new 13Ds and Blue Harbour kept its top four holdings constant. His 13Ds of interest right now are Investors Bancorp (see below), Chico's (which could be a buyout target with recent industry action). Cliff's top activist position, Rackspace, looks to be dead money at this point - a shrinking market for a cloud company facing more and more competition.  

stockpucker takeaways

  • Cliff has been making a lot of comments in the media about Investors Bancorp over the last few months. His fund upped its stake by 17% last quarter.  
  • Xilinx is a new position but still relatively small for the fund and its upped its AGCO stake by some 130%
  • Blue Harbour continues to blow out of its CACI stake, selling off 49% of its stake last quarter. 
  • It also sold off about 22% of its Progressive Waste shares.

THIS WEEK IN ACTIVISM VOL. 15

Added on by Lee Ho Fook.

13F day came and went in a fury. We’ve been working up the suite of activist newsletters to go out later this week but did find time to put together this week’s edition of This Week In Activism. Before the TWIA action - here’s a sample from the major activist newsletter last quarter and of course the details can be found here.

THIS WEEK IN ACTIVISM VOL. 15

News

  • JANA Partners sold off its Ashland stake, of which, it had taken a an activist stake in the company back in 2013.

  • Engaged Capital has upped its stake in Jamba to 10.2%, up from around 8%.

  • Marathon Partners is waging a proxy battle at its long-time activist target Shutterfly.

  • H Partners managed to overthrow the Tempur CEO and two board members.

New campaigns

  • Elliott Associates is now active in CDK Global, alongside Fir Tree and Sachem Head Capital, owning a 7.6% stake.

  • Armistice Capital has gone active on Spectrum Pharma with a 5.2% stake.

Interesting activist reads around the web—

  • Adidas takes step to defend against activist investors, Oregonlive

  • DuPont wins board battle with activist investor, Plastic News

  • Hedge fund activists buy McDonald's, but are they lovin' it?, Reuters

Most read posts from stockpucker this week—

  • Early insights from 13F day, There’s a Seth Klarman vs. David Einhorn battle brewing. Einhorn pitched a “short the frackers” thesis at Sohn last week. His main target was the mother fracker, Pioneer Natural Resources ($PXD). Klarman revealed that he has it as a top 5 position.

  • More 13F Insights: Kyle Bass, Jeff Smith and David Winters, Precision Castparts got a lot of attention from big name investors. This includes SQ, Soroban Capital, 3G, Tyrus, Farallon, Weitz Investment, Berkshire, Third Point and Eminence.

  • Tempur Pedic: H Partners' Unlikely Win, Last week, Tempur Sealy revealed that shareholders had voted to oust three board members. It accepted their resignation and essentially forced out the CEO.

  • Closer to the Yum! Brands Spinoff?, J.P. Morgan said that it got the impression that a spinoff of Yum China was now more a "probability" than a "possibility." They upped their target from $83 to $108.

In case you missed our last activist update, here it is.

Have feedback, or questions about certain activist campaigns, email us at stockpucker@gmail.com. Or drop us a line if there’s a campaign you want us to cover.

Until next weekstockpucker

More 13F Insights: Kyle Bass, Jeff Smith and David Winters

Added on by Lee Ho Fook.

Still combing through 13Fs, building quarter activist newsletters, but more insights below.

  • Precision Castparts got a lot of attention from big name investors. This includes SQ, Soroban Capital, 3G, Tyrus, Farallon, Weitz Investment, Berkshire, Third Point and Eminence.

  • Kyle Bass at Hayman Capital traded out mortgage servicers for oil and gas names; selling off Nationstar Mortgage and Ocwen Financial and adding Concho Resources, Whiting Petroleum and Oasis Petroleum.

  • Ironically enough, Jeff Smith at Starboard Value dumped all his AOL shares before the buyout. Although he’d already dumped most of that AOL stake during the fourth quarter he still owned a couple thousand shares that he sold off last quarter. A couple new positions for Starboard Value were Bank of New York Mellon - which is a Marcato Capital and Nelson Peltz target - and Tempur Pedic - which just lost a proxy battle to H Partners.

  • David Winters at Wintergreen Advisors started blowing out of Coca-Cola after many years of trying to change compensation practices.

  • David Einhorn’s Greenlight Capital took a major stake in General Motors, putting it in its top five. Greenlight noted this position in its letter.

Closer to the Yum! Brands ($YUM) Spinoff?

Added on by Lee Ho Fook.
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Busy building this quarter’s activist newsletters, but it’s easy to get distracted by the numerous other 13Fs out there. This entry isn't all about the 13Fs, although it's worth noting that we got some more insight into the size of Dan Loeb and Kieth Meister's Yum! Brands position.

There’s no doubt that Yum! has needed an activist for some time now - with the plan of splitting the company. It got two the other week. Dan Loeb and his Third Point have a “sizable” stake. Loeb doesn’t plan on playing an activist role. Loeb’s said before that he’s up for a spin-off, but isn’t necessarily pushing for one.

The cliche goes, invest with a catalyst - in this case, the activist investor is the catalyst. Keith Meister is kingmaker here. It remains to be seen just how big his position is, but it’s said to be his largest position ever and is upwards of 3% of the fast food joint.

Yum! gets a third of its operating income from China. Based on the Yum! investor conference in China last week, J.P. Morgan said that it got the impression that a spinoff of Yum China was now more a "probability" than a "possibility." They upped their target from $83 to $108.

The ultimate scenario looks to be something along the lines of a tax-free spin of its China business, pursuing a joint U.S. and Hong Kong listing.

Early insights from 13F day $QCOM $YUM $PXD

Added on by Lee Ho Fook.

It’s here, 13F day that is; in working up the suite of activist investor focused newsletters to go out in a few days, it’s hard not to get distracted by the various other 13Fs from value investors like Seth Klarman coming across the wire. If you want to get a look at last quarter’s major activist newsletter, drop us a line, but here are some things that have caught my eye thus far...

  • There’s a Seth Klarman vs. David Einhorn battle brewing. Einhorn pitched a “short the frackers” thesis at Sohn last week. His main target was the mother fracker, Pioneer Natural Resources ($PXD). Klarman revealed that he has it as a top 5 position. 
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  • Dan Loeb and Third Point blew out of their Alibaba position ($BABA), which was a top 4 position that it had just initiated last quarter. We got to see just how big his Yum! ($YUM) position was, and it's not all that huge - coming in at its 14th largest position. Recall, Loeb and Corvex have talked about Yum over the last few weeks - Corvex wants to split it up. 
  • We got to see just how big a position Qualcomm ($QCOM) is for JANA Partners and as expected, it's the fund's top equity holdings. Although, JANA did quadruple its put position on the SPY. 

Computer Sciences Corp Plans To Split, Yet Again

Added on by Lee Ho Fook.

Computer Sciences Corp is planning to split its commercial IT and government business. This comes after an apparent failure to sell the entire company.

CSC has a government business that generates a large part of its revenues, but that's not a sexy business - leading the market to discount its multiples. It also has its business services segment, which has been “in transition.”

JANA Partners is active in the name, albeit a smallish $560M position - and shares are down 7% since it officially went active on the name in Feb.

Now, the announced spin is nothing new, nor a surprise. It’s just as the company had initially planned last year - where it’ll sell its government business to a private equity firm and its business services business goes to a foreign player.

The talks are supposedly in advanced stages, but we’ve seen this story before with CSC. The more likely (or feasible) path is to spin off its government business, which sets up the business services/big data/cloud business up to be bought by a larger internet player. Structured right, the government business could be spun off tax-free as a government services company.

Michael Lawrie, the former ValueAct Capital partner, has been in beast mode since taking over as CSC CEO in 2012. Shares are up 110% since then. But he’s really hurting of late.

The May 19 earnings announcement is the date to watch for - more details on the split should come then.

Tempur Pedic ($TPX): H Partners' Unlikely Win

Added on by Lee Ho Fook.

Last week, Tempur Sealy revealed that shareholders had voted to oust three board members. It accepted their resignation and essentially forced out the CEO. It’s really rather unprecedented, where H Partners wasn’t even able to run a conventional proxy battle - having missed the nomination deadline.

The lesson here; when you’ve got nearly 30% of your fund in the stock, don’t underestimate the power of the activist. By any means necessary type of deal. This includes a 100-page presentation. Long-term, I’m still not sure how the stock plays out - the industry is becoming commoditized. The turnaround plan is still uncertain, besides a transition in marketing spend. The stock is up 30% or so in the last couple months; the easy money has been made.

This Week In Activism: $AT and $BCO are "chosen"

Added on by Lee Ho Fook.

Newsletter subscribers got this on Sunday. But get excited - we’re gearing up for our next quarterly newsletter roll-out set to hit less than 2 weeks. But we’re doing a complete overhaul. More on that to your right. Feel free to email us with any questions or thoughts.

THIS WEEK IN ACTIVISM VOL. 14

News

  • Starboard Value upped its stake in Integrated Silicon Solution earlier in the week to 3.57mm shares, buying up half a million shares. It now owns 11.2%. Shares are trading at a 2.5% discount its buyout offer [Jan. post on ISSI]

  • Big 5 Sporting Goods settled with Stadium Capital, expanding its boards to eight members. The key being that they eliminated by laws for requiring affirmative vote of 80% for elections  [coverage here]

  • Lioneye Capital upped its stake in Asbury Auto to 8.6%, an increase of just around 10%.

  • Owning 6.3% of Perry Ellis, Legion Partners is waging a proxy battle to shake up the board, including putting in place an independent chairman.

New campaigns

  • Brink’s Co. has Starboard Value as an activist. It owns 8.2% of the company. No plans announced, but the theory is that cost cuts will be the focus. As well, there’s the potential for getting the company sold to an overseas player [more from us here]

  • Mangrove Partners is now active at Atlantic Power with a 5.7% stake. They’ll be pushing to get more capital returned to shareholders, while also pushing for a sale [thoughts here]

  • Cove Street Capital goes active on Comverse, owning 7.1%.

Interesting activist reads around the web—

  • A bunch of top hedge fund managers just gave a 40 minute talk on how easy their jobs have gotten, BI

  • Trian’s Nelson Peltz: What Happens When Activist Comes on Board, WSJ

  • Activist investor Nelson Peltz wants to dismantle research and innovation at DuPont, IPWatchdog

Most read posts from stockpucker this week—

In case you missed our last activist update, here it is.

Have feedback, or questions about certain activist campaigns, email us at stockpucker@gmail.com. Or drop us a line if there’s a campaign you want us to cover.

Until next weekstockpucker.

Perry Ellis' ($PERY) Activist Battle

Added on by Lee Ho Fook.

Legion Partners is active over at Perry Ellis ($PERY), nominating a short-slate of three dissident directors last week. They own 6.3% of the company, having teamed up with Calstrs. It’s pushing for corporate governance changes, looking to separate the CEO and chairman roles.


The problem is, it’s being run as a family business - led by the Feldenkreis family. The nominees include Rob Mettler - previously of Macy’s, Darrell Ross - of Luxury Brand Holdings, Josh Schechter - director of Aderans.

Brink's Co. ($BCO): Another Look At Starboard Value's Newest Target

Added on by Lee Ho Fook.

Starboard Value is active at Brink’s Co. with an 8.2% stake. Not a huge position for Starboard, making up just 2.75% of its pro forma portfolio. A decent size wager. Getting the company sold is the likely path to success for SV, although it’s already up 20% on its stake. As mentioned afore, it’s SV’s 9th largest holding on a pro forma basis.

International operations still account for three-quarters of its revenues. Making the real growth story emerging markets. The focus being Latin America - its largest market. North America still needs a turnaround.

However, Latin America hasn’t built out the necessary infrastructure for a strong money movement business. When that comes, there is growth opportunities. In the meantime, it has a payment services business, for things such as prepaid payroll cards and online card processing.

It's highly exposed to the emerging markets, but this has yet to translate into the big growth. One option is to re-enter the home security market, where its non-compete with its home security business has expired. Re-entry into the home security business would give it a jolt in revenue growth.

There’s also a big opportunity to cut costs and get margins back in line with peers in the meantime. Brink’s EBITDA margin is running about half of its major peers. The company has a cost savings plan in place, but it’s just not enough.

Gamco Investors went active in February of last year and less than six months ago was pushing to get a dissident director on the board. Gamco thinks that Brink’s is trading of at a discount to its private market value.

Recall that Shamrock Holdings sent a letter to Brink’s in 2012 trying to get the company to sell itself, citing underperformance. It’s continued to underperform, up just 9% since the start of 2013, while the S&P 500 is up 45%. The valuation is still relatively cheap, trading at just over 6x forward EV/EBITDA - compared to the market, but not historically. And private equity interest? Cash flow generation has been on the decline, so that’ll be tough. In the end, Starboard Value didn’t lay out any plans, other than to say it may engage with management. A further breakup doesn’t seem likely, with the big thesis likely being a push to get the company sold to a security business that’s looking for Latin American and emerging market exposure.

Clinton Group & Mangrove Partners: Sell Yourself Atlantic Power ($AT)

Added on by Lee Ho Fook.
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When there’s two activist pushing for a sale, it makes you really want to love Atlantic Power. Even though, one activist is Clinton Group, and the other a PE firm, Mangrove Partners. In any case, it’s a torrid high risk/low reward play. 

Clinton (owning 2%) sent a letter to Atlantic power last year, calling for an outright sell, thinking the company could get $4+ a share - the key being that Atlantic cannot remain profitable as an independent entity. 

Mangrove is now in on the action, active this month with a 7.5% stake. It wants the electric company to pay a buyback - using its $350mm or so from the sale of its wind assets. It also wants to explore further asset sales and an outright sale. 

Using cash for buybacks at this point seems imprudent. The rise of fuel input costs has hamstrung Atlantic - leading to the dividend cut in 2013 and the stock down from $15 to $3/share. We still have $1.4bn on a $400mm market cap. The board has already said they received no offers above the market price last fall when trying to sell themselves. Clinton’s deal of finding a buyer at $4+ a share is just 25% upside. But it’s still going to be hard to find a buyer and given the non-regulated power business is broken they’ll continue to bleed cash.  

Another Look At Red Mountain Target iRobot ($IRBT)

Added on by Lee Ho Fook.
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Firstly, recall that Red Mountain is active at iRobot with a 5% stake. 

iRobot has a first mover advantage, but that could start to change. Dyson has launched its own robotic vacuum with positive reviews, and the robotic lawn mower market already has several incumbents, including Deere and Co. 

The developments in robotics promise to have a large impact on a number of industries, and the fear is that if IRBT does sell off its non-home-focused products, it'll box the company in. Alternatively, investing in research and development in the "hopes" of nailing it in new fields is an even bigger risk, ultimately gambling with shareholder capital.

Where we stand: At nearly 30x earnings, IRBT gets a lot of flack for not being cheap. However, with a iron clad balance sheet and plenty of growth opportunities, the valuation is fairly reasonable. And that valuation gets especially interesting assuming IRBT can shed the costs of the defense and telepresence businesses and put in place a hefty buyback.

Now, is this the best move for the company in the long-term? Activist investors catch a lot of flack for favoring short-term gains over long-term success, but as mentioned above, Red Mountain is a bit different. It's hard to see how IRBT would lose by transforming itself into a home robot cleaning/maintenance products company - household cleaning and maintenance is a steady market after all. Full piece here.

Previous iRobot mention, This Week In Activism Apr. 13 

L&B Still Pushing For Change At $MGM: Too Big A Fight?

Added on by Lee Ho Fook.

Right now, the focus is about trying to keep L&B out of the boardroom. A negative distraction, but one that appears necessary if MGM shareholders want to unlock value via a REIT formation. However, the key is, that level of value creation won't be easily achieved. There's a lot of intricacies in forming a REIT for a global casino operator with these types of debt levels. A board overhaul by L&B would be a positive for attempting to spin off assets into a REIT, but again, that's easier said than done. And whether L&B's nominees would be positives for MGM and its global operations in the long term is another story. We still don't own MGM and wouldn't until we see progress in its ability to curb back development projects and divest non-core assets for debt reduction. Full piece is here.

This Week In Activism May 4

Added on by Lee Ho Fook.

The Sohn conference today and SALT conference tomorrow has us on our heels this week. Thus, we’re a little late with TWIA this week - and it’s a little light by past standards.

THIS WEEK IN ACTIVISM VOL. 13

News

  • C. Silk & Sons has joined the “iPass Shareholders for Change” in its activist stance against iPass. It changed its 5.8% stake from passive to active. More here.

  • Mangrove Partners owns 7.5% of Atlantic Power and is pushing the company to split itself up, but will settle for capital returns - i.e. special dividend.

  • Sarissa Capital got the CEO and founder of Ariad Pharma ousted. He’d been there for 25 years. Sarissa will be leading the search committee for a new member.

  • Starboard Value got a win at LSB Industries, adding 5 members to the board. LSB also said it was exploring options for putting its climate control business in an MLP.

  • Macellum and Barington Capital put together a presentation on Children’s Place. They own just 2% of the company, but think the retailer could get sold give the valuation.  

New campaigns

  • West Face Capital went active on Gran Tierra Energy with a 9.8% stake. More on our thoughts here. We also have the presentation that West Face put together - email us if interested since they’re trying to keep it out of mass circulation.

  • JCP Investment is now active at Casella Waste with a 5% stake. They’re pushing for #corpgov changes, including addressing the dual class structure. Our thoughts.

  • Atlantic Investment went active on Wesco, the industrial supply company. It owns just over 5% and hasn’t laid out any plans capital allocation is the likely focus. More from us.

Interesting activist reads around the web—

  • Lipton’s latest on Activism: Maybe you should settle, WSJ

  • Bigger activist get bigger results, Reuters

  • Activist rattle the cages of 19 big companies, USA Today

  • Jana Partners’ Barry R. has a different take on BlackRock’s activist diss, NY Times

Most read posts from stockpucker this week—

In case you missed our last activist update, here it is.

Have feedback, or questions about certain activist campaigns, email us at stockpucker@gmail.com. Or drop us a line if there’s a campaign you want us to cover.

Until next weekstockpucker.



 

Wesco ($WCC): Atlantic Investment Management's Newest Activist Target

Added on by Lee Ho Fook.

Alex Roepers Atlantic Investment Management went active at Wesco. The fund owns a 5% stake and on a pro forma basis it’s in the top fund’s top five.

The company is an electrical and industrial products distributor, operating much like the Fastenal business model - offering millions of SKUs. It’s got some 500 stores and operate distribution centers. Shares peaked last summer and fell along with oil prices. The biggest part of this weakness is likely overblown - only about 10% or so is from energy-related spending.

The industrial distribution market is still large and fragmented, with the key for Wesco going forward being acquisitions. Wesco’s business includes long-term contracts (good and bad), capping margins at times due to competitive pricing - yet does offer steady cash flow. The big opportunity is to get into higher margin areas like safety products.

Crudely, Wesco is the cheapest player - trading near 8x forward EV/EBITDA. Others - HD Supply, Fastenal, Watsco, WW Grainger - trade north of 12x. Wesco is also the cheapest in terms of EV/FCF, with a 7% plus FCF yield. Assuming low- to mid-teen earnings growth and just some minor multiple expansion, you could have a $115 stock in three years’ time. Not grandiose returns, yet, this doesn’t include any capital allocation rearranging upside that Roepers can generate.

 

Sandell Asset Management Gets A Win At Brookdale Senior Living ($BKD)

Added on by Lee Ho Fook.

Tom Sandell's Sandell Asset Management got two of its nominees on the Brookdale Senior Living board the other week. One step closer to getting the company to form a REIT. But the upside of forming a REIT is limited. 

Going through all that trouble to unlock that real estate value for 25% upside seems rather excessive. Many investors overlook Brookdale as a real estate play, but it doesn't offer a dividend. A couple of other overlooked things for BKD: One, its Emeritus Senior Living acquisition from last year will further help the company move away from Medicare pricing pressures as it increases sales generated from private pay sources. Two, its large net operating loss balance which should keep taxes low. Even still, it's still too early to tell if BKD can fully take advantage of these things and 12x forward EV/EBITDA is a bit high given the uncertainty. Read the full piece here.

Activist At The Christopher & Banks ($CBK) Gate: Go Away

Added on by Lee Ho Fook.

Macellum Capital is an activist (5% stake) at Christopher & Banks ($CBK). Like all apparel retailers, CBK's stock is well off of late. This comes as same-store sales have gone from a positive 4.9% in 3Q13 to a negative 7.5% in 4Q14. It's having trouble at fashion shows could be a bigger problem, where it's losing touch with its customers.

Macellum is aiming to get new leadership installed. It's already had four CEOs in the last five years. It's tough to own CBK here, even with Macellum's involvement. Note that a buyout is always in the works for these apparel retailers. However, we've already seen failed buyouts for the likes of Ann, Express and Chico's of late. No reason to believe that CBK is any different, yet. Read the full piece here

JCP Investment Goes Active on Casella Waste Systems ($CWST)

Added on by Lee Ho Fook.

JCP Investment Management is targeting Casella Waste Systems. It owns 5% of this $220M market cap waste collector / landfill operator and is nominating three members for the board, including former Waste Management executive Brett Frazier, partner in several Texas-based waste and landfill operations Joe Swinbank and finally the JCP founder James Pappas.

JCP took notice of Casella after the company has underperformed major peers like Waste Management and Republic Services over the last one-, three-, five- and ten-year periods. JCP blames this on the company’s subpar investments and weak operational structure. In reality, all that is rooted in the company’s dismal corporate governance.

The average board tenure is 15 years, with 4 (of 9) directors having been on the board for 20+ years. Two brothers, Doug and John, (one CEO and the other president of the construction subsidiary) are on the board and both own 100% of the Class B shares, which has 10-to-1 voting power. The company has paid Doug/John related companies $70M since 1995 (nearly 12% of cumulative cash from operations) and paid shareholders nothing.

Debt is also a big overhang here, trading at 6x debt to EBITDA (peer average is around 3x). Divestitures could help work that down. JCP has a long road ahead with this corporate governance nightmare, at least a three year runway. But one way of thinking about it includes, if JCP can get some corporate governance changes, we’ll likely see 8x EV/EBITDA (versus the current 7x and closer to peers), and JCP will be a cost cutting fool (estimated to get EBITDA margins closer to 20% - still well below peers), and there could be a third of debt cut in 36 mos., ultimately getting shares to between $13.50 and $15.