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In October, we tracked 54 active 13D campaigns based on recent filings and developments. These campaigns showcased both the successes and challenges encountered by activist investors, including the launch of 4 new 13D campaigns during the month. Among them, 2 were about merger arbitrage. As always, we’ll take a closer look at the specifics of each new campaign.
Jana Partner Management’s October Activist Campaign
(I): Lamb Weston
Activist investor Jana Partners has acquired a 5% stake in Lamb Weston, aiming to address perceived capital misallocation and operational inefficiencies within the frozen potato product company. This move coincided with a nearly 10% surge in Lamb Weston's stock price, following Jana's regulatory filings. Jana, known for its strategic activism, plans to engage in discussions to enhance financial performance, optimize share repurchase strategies, and improve corporate governance.
Collaborating with Continental Grain, Jana has nominated a slate of experienced industry executives to the board, seeking to rectify Lamb Weston's operational challenges and realign management incentives with shareholder interests. Given the company's recent struggles, including a significant decline in stock prices and disappointing earnings, Jana's involvement could lead to a refreshed board focused on operational improvements and potential strategic transactions, potentially positioning Lamb Weston for a lucrative acquisition offer.
Gamco’s October Activist Campaign
(I) Suro Capital COrp
GAMCO Investors, Inc. also acquired a total of 1,198,575 shares of SuRo Capital Corp., accounting for approximately 5.13% of the company's outstanding common stock. SuRo Capital Corp., a Maryland-based corporation, focuses on making investments in growth-oriented businesses and operates primarily in the venture capital space.
Merger arbitrage Filings
The 13D filings outlined below are related to the merger arbitrage strategies of the companies, and as such, we have included them in this subsection.
Farallon Capital Management vs. Squarespace
Farallon Capital Management, L.L.C. recently acquired 5,600,000 shares of Squarespace, Inc., representing 6.1% of the company's Class A common stock. This strategic acquisition was part of Farallon’s plan to participate in Permira's tender offer, aiming to sell their shares at $46.50 each. Farallon viewed this as an opportunity to capitalize on what they believed to be an undervalued asset in the market.
Gamco vs. Chuy’s Holdings
Darden Restaurants has successfully acquired Chuy's Holdings for $37.50 per share, valuing the deal at approximately $605 million. This all-cash transaction reflects a 10.3x multiple of Chuy's adjusted EBITDA and is priced 48% above the company's closing stock price on the announcement date. Darden expects to realize pre-tax net synergies of around $15 million by the end of fiscal 2026. Founded in 1982 in Austin, Texas, Chuy's operates over 100 restaurants across 15 states, offering authentic Tex-Mex cuisine. Darden's CEO, Rick Cardenas, emphasized Chuy's strong growth potential, making it a fitting addition to their diverse portfolio, which includes well-known brands like Olive Garden and LongHorn Steakhouse. As a result of the acquisition, Chuy's headquarters will relocate to Florida.
GAMCO Investors, Inc. strategically acquired 863,260 shares of Chuy's, representing about 5.01% of the company's outstanding common stock, as part of a merger arbitrage strategy.
Other Significant Activist Campaigns Worldwide in October 2024
Activist Investor Pressures Potbelly's Board to Explore Sale Options
Immersion Investments LLC, a major shareholder of Potbelly Corp., is urging the sandwich chain's board to consider a sale to private equity, asserting that the company is undervalued and represents an "underappreciated growth story." In an open letter, Immersion called for immediate action to maximize shareholder value, including a strategic review to evaluate potential sale options and expedite share buybacks, criticizing the slow pace of repurchases since the buyback authorization was established.
They recommended reducing investments in technology and staffing while emphasizing the need to cut operating expenses. Despite acknowledging CEO Bob Wright's efforts to expand through franchising, Immersion argued that current strategies are insufficient and highlighted the potential for significant high-margin revenue growth through franchise commitments. The investor noted that Potbelly’s current valuation, at 8x EBITDA, does not reflect its growth potential, particularly as its stock has traded between $6.28 and $14.36 over the past year. Immersion believes urgent action is necessary to improve shareholder value and fully realize the company's growth potential.
Activist Investor Legion Partners Seeks Board Influence at Five9 Amidst Declining Stock
Legion Partners has ramped up its stake in Five9, a CCaaS provider, and is pushing for a board seat and cost-cutting measures as the company faces increasing pressure from investors. This move follows Anson Funds Management's recent investment and calls for a sale. Although the exact size of Legion’s stake remains undisclosed, it is believed to be significant. The activist investors first entered the scene in 2021 after Five9 rejected Zoom's $14.7 billion acquisition offer. Despite achieving double-digit revenue growth, Five9’s stock has plummeted by 60% this year, prompting the company to announce its first layoffs, affecting 7% of its workforce, to enhance shareholder value. As Five9 attempts to navigate these investor pressures, it remains focused on profitability and strategic initiatives, including the recent launch of its Genius AI platform to streamline AI adoption in contact centers.
Southwest Airlines Settles Boardroom Conflict with Elliott Investment Management Amid Leadership Changes
Southwest Airlines has reached a resolution with activist investor Elliott Investment Management, who recently convened a special shareholder meeting to vote on a proposed slate of eight new directors. Holding a 10% stake in the airline, Elliott has been pushing for significant changes, citing dissatisfaction with recent board actions that it believes fail to drive genuine improvements in performance. The settlement allows CEO Bob Jordan to retain his position while Southwest agrees to appoint five of Elliott’s nominees to its board, marking the largest number of seats the hedge fund has secured in a U.S. company settlement. Executive Chairman Gary Kelly will also retire sooner than planned, effective next month.
Elliott’s proposals emphasize the need for a complete board reconstitution, with candidates including experienced industry veterans like David Cush, former CEO of Virgin America, and Michael Cawley, ex-deputy CEO of Ryanair. This agreement follows a surprise profit report for the third quarter, benefiting from improved demand and pricing, although shares dipped 4.2% due to a disappointing revenue outlook for the fourth quarter. With the new board members poised to assist in overseeing Southwest's operational and strategic plans, the airline aims to enhance its governance and create long-term shareholder value, all while navigating ongoing challenges in the post-pandemic environment.
Pfizer CEO Albert Bourla to Meet Activist Investor Starboard Value Following $1 Billion Stake Acquisition
Pfizer's CEO Albert Bourla is scheduled to meet with activist investor Starboard Value, which has taken a stake of approximately $1 billion in the company amid declining revenue and share prices post-pandemic. The meeting will include Starboard's CEO Jeff Smith and partner Patrick Sullivan, along with lead independent director Shantanu Narayen, to discuss potential turnaround strategies. This initiative is reportedly backed by former Pfizer CEO Ian Read and former CFO Frank D’Amelio, both of whom are interested in assisting Starboard’s efforts.
With Pfizer's stock trading nearly 50% below its pandemic peak, the company has struggled to replace revenue lost from its COVID products, resulting in a 41% revenue dip in 2023. Analysts have expressed skepticism about finding quick solutions, particularly following the lackluster launch of its RSV vaccine and disappointing results from an obesity treatment. Starboard has criticized Pfizer's management decisions, especially regarding its aggressive $70 billion acquisition spree, and is advocating for significant changes in leadership to address these ongoing challenges.
Kenvue Shares Jump Following Activist Investor Starboard's Stake Acquisition
Shares of Kenvue surged nearly 5% after news emerged that activist investor Starboard Value has acquired a significant stake in the company, which spun out from Johnson & Johnson in mid-2023. While the exact size of Starboard's investment remains undisclosed, the firm is expected to outline its plans for enhancing Kenvue's share price at the 13D Monitor’s Active-Passive Investor Summit. Kenvue, known for its popular consumer brands like Aveeno, Band-Aid, and Neutrogena, has seen its stock performance stagnate this year, in contrast to the S&P 500's 23% gain. Despite the recent uptick, Kenvue's shares have fallen from their initial trading price of around $27, closing at $21.72, reflecting a market value drop from $50 billion to approximately $41.6 billion since its IPO. Starboard's engagement comes shortly after it amassed a $1 billion stake in Pfizer, indicating its active approach to driving value in underperforming companies.
Corvex Management Takes Stake in Fortrea Holdings, Following Activist Starboard's Lead
Corvex Management LP has acquired a stake in Fortrea Holdings Inc., a clinical trials management company spun out from Labcorp Holdings Inc. Activist investor Keith Meister believes that Fortrea could be valued between $25 to $27 per share if it enhances its earnings before EBITDA margins. He also suggested that the company consider selling non-core assets to bolster its financial position. Meister indicated that Fortrea's underperformance is largely due to disruptions related to the spin-off. However, he noted that the company could become a target for acquisition, with potential buyout offers reflecting a premium of about 40%. Corvex's investment follows a similar move by fellow activist Starboard Value LP, highlighting the trend of investing alongside other activists for potentially lower-risk opportunities.
Activist Investor Mantle Ridge Acquires $1 Billion Stake in Air Products, Seeks Strategic Dialogue
Mantle Ridge, led by Paul Hilal, has amassed a stake exceeding $1 billion in Air Products and Chemicals, aiming to engage with the company's board regarding strategic initiatives and capital allocation. This move comes as Air Products continues to underperform the S&P 500 for the second consecutive year, with its stock up only 6.4% in 2024 compared to the S&P 500's 21% gain. The activist investor is also focusing on succession planning for 80-year-old CEO Seifi Ghasemi, amidst a year marked by management changes, including the unexpected resignation of COO Samir Serhan in July. While Air Products maintains ongoing communication with its investors, the growing pressure from Mantle Ridge highlights the need for a reevaluation of the company’s direction in light of its recent struggles and competitive challenges.
Activist Investor Irenic Capital Advocates for Strategic Review at Reservoir Media to Enhance Shareholder Value
Irenic Capital Management, holding an 8.14% stake in Reservoir Media, is calling for a strategic review and the formation of a special committee to oversee the process. This initiative follows a 22.24% decline in Reservoir’s share price since its SPAC IPO in 2021, despite a significant increase in gross profit. Irenic believes that, given Reservoir’s nature as a collector of royalties rather than an operating company, a sale could enhance shareholder value. With the Khosrowshahi family owning 44% of the company, Irenic aims to collaborate with management rather than pursue confrontational activism, positioning Reservoir to attract a strategic buyer willing to pay a premium based on its net publisher’s share (NPS) valuation, especially in light of recent favorable market trends in the music industry.
Cheesecake Factory Remains Committed to Portfolio Strategy Amid Activist Pressure
The Cheesecake Factory Inc. has reaffirmed its commitment to a diversified portfolio strategy despite recent calls from the activist shareholder JCP Investment Management to spin off its developing concepts, including North Italia, Flower Child, and Culinary Dropout. In response to these pressures, CEO David Overton highlighted the company's successful expansion, noting the opening of 17 new restaurants this year and plans for up to 22 more in 2024. CFO Matt Clark emphasized that smaller concepts benefit significantly from the Cheesecake Factory’s established resources, such as access to insurance and construction services. The company reported a net income of $30 million for the third quarter, with total revenues rising to $865.5 million, reflecting a 1.6% increase in same-store sales. Cheesecake Factory continues to develop its Cheesecake Rewards loyalty program, which has exceeded expectations in customer engagement. Despite the external pressures, executives believe that maintaining a unified portfolio is essential for the long-term success of all their restaurant concepts.
Minority Shareholder CIAM to Challenge Vivendi's Proposed Split
Investment fund CIAM has announced plans to appeal to France's financial watchdog, AMF, in response to Vivendi's proposal to split the media conglomerate into three separate entities: Canal+, Havas, and Louis Hachette Group, each to be listed in London, Amsterdam, and Paris, respectively. CIAM, which holds less than a 1% stake in Vivendi, argues that the split could undermine minority shareholder rights by allowing the controlling Bollore Group to benefit from less regulated markets while circumventing mandatory takeover bid regulations. The fund intends to vigorously contest the plan at the upcoming shareholders' meeting on December 9, where shareholders will vote on the split, with a potential trading launch for the new entities set for December 16.
Gerresheimer Shares Rise Following Activist Investor Ricky Chad Sandler's Stake Acquisition
Shares of Gerresheimer AG surged by as much as 6.8% after activist investor Ricky Chad Sandler acquired a 5.43% stake in the German medical packaging manufacturer. Following the disclosure of this stake, shares were trading 4% higher. Ongoing discussions between Sandler, founder of Eminence Capital, and Gerresheimer's management began in June, although the company is unsure of Sandler's specific agenda. Some analysts suggest that this investment could compel Gerresheimer to enhance its communication strategies and possibly restructure. The company recently faced challenges, having lowered its annual outlook twice this year after reporting disappointing preliminary third-quarter results, which led to an 18% drop in share value in a single day. As Gerresheimer prepares to release its full quarterly results, there is cautious optimism that Sandler's involvement may push for improvements and rebuild investor trust.
Investor Bluebell Capital Calls for Leadership Changes at BP Over 'Embarrassing' Share Price Performance
Bluebell Capital Partners, a London-based activist hedge fund, has launched a scathing critique of BP, urging the resignation of chairman Helge Lund due to the company's underwhelming performance in the energy sector. Despite a focus on renewables, BP has lagged behind rivals like Shell, Chevron, and ExxonMobil, which have doubled down on fossil fuels, leading to dissatisfaction among shareholders. Bluebell, which holds a small stake in BP, has criticized the board for delaying updates on its green strategy and is pushing for a strategic overhaul that includes potentially scrapping previous fossil fuel reduction targets. The hedge fund's co-founders described BP's performance as "unacceptably dire" and called for the removal of independent director Amanda Blanc, alongside a commitment to an updated strategic plan that acknowledges past failures. BP, however, claims that its engagement with shareholders has shown little support for Bluebell's position, asserting that it is meeting its legal and regulatory obligations as a listed company.
Petrus Advisers Cuts Stake in Immofinanz After Call for Strategic Discussions
According to Bloomberg. Petrus Advisers Ltd. has slashed its stake in Austrian landlord Immofinanz to 1.1% from 6.4%, just a week after urging negotiations with majority owner CPI Property Group regarding the company's future. The activist hedge fund, led by Klaus Umek, also reduced its indirect voting rights to 2.8% from 3.5%. Despite previously suggesting that shares could rise to €31 by next year, Immofinanz's stock fell 43% in September, marking its steepest decline since 2008, and closed at €17.82 on Tuesday. This drop followed speculation about a potential squeeze-out by CPI, which holds a 75% stake in Immofinanz. A spokesperson for Petrus declined to comment on the situation.
Align Partners Urges Doosan Bobcat to Enhance Shareholder Value
Align Partners Capital Management Inc., a South Korean activist fund with a 1% stake in Doosan Bobcat Inc., is calling for strategic measures to boost shareholder value, including higher dividends and the sale of non-core assets. The fund believes Doosan Bobcat's corporate value is undervalued, with a price-to-earnings ratio of just 4 compared to the Kospi 200 average of 20. This comes after a failed restructuring plan by Doosan Group that aimed to transfer a majority stake in Doosan Bobcat to loss-making Doosan Robotics. Align Partners' founder, Lee Chang-hwan, has a track record of pushing for governance improvements in other companies, and following the fund's recommendations, Doosan Bobcat's shares rose 7% to 43,000 won, outperforming the broader market.
October 2024 Activist Campaign Highlights: Key Takeaways
📝 So, in summary - here are the key themes in October:
High-Profile Activist Engagement:
Jana Partners acquired a 5% stake in Lamb Weston, leading to a nearly 10% surge in stock price, focusing on capital misallocation and operational efficiencies.
Starboard Value amassed a $1 billion stake in Pfizer, initiating discussions on turnaround strategies due to declining revenue and share prices.
Governance Strategy:
Elliott Investment Management negotiated board appointments at Southwest Airlines, emphasizing the importance of governance in improving company performance.
Irenic Capital called for a strategic review at Reservoir Media, advocating for enhanced shareholder value following a 22.24% decline in share price.
Strategic Proposals and Initiatives:
Immersion Investments urged Potbelly Corp to explore sale options, pushing for immediate action to maximize shareholder value through a strategic review.
Corvex Management acquired a stake in Fortrea Holdings, advocating for non-core asset sales to bolster financial health.
Market Reactions to Activism:
Gerresheimer AG shares rose 6.8% after Ricky Chad Sandler's stake acquisition, reflecting optimism about potential changes following activist involvement.
Kenvue saw its shares jump nearly 5% after news of Starboard Value’s investment, highlighting the positive impact of activist interest on market performance.
Cost-Cutting and Operational Efficiency:
Legion Partners pressured Five9 for board representation and cost-cutting measures as the company navigates declining stock prices and operational challenges.
Bluebell Capital Partners criticized BP’s performance, calling for leadership changes to address strategic failures and enhance profitability.
The activist landscape in October showcased a variety of high-profile engagements and strategic initiatives aimed at driving corporate governance improvements and enhancing shareholder value. With several notable investors taking significant stakes in underperforming companies, the month highlighted the power of activist influence in shaping corporate strategies. As these activists push for operational efficiencies and better governance, companies must remain vigilant and responsive to maintain shareholder confidence and foster sustainable growth. The interplay between activist investors and corporate boards suggests that constructive dialogue and collaboration can lead to meaningful changes and positive market reactions.
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