Starboard Value, a New York-based activist fund, has amassed a 13.2% stake in Insperity, an HR outsourcing company, and urged the company to consider selling itself, among other options. Following the activist investing firm’s disclosure of the stake, Insperity’s stock surged 6.1% in premarket trades.
Starboard – The largest shareholder in Insperity
In its regulatory filing Tuesday, Starboard Value LP disclosed a 13.2% ownership stake in Insperity, Inc., making the activist fund the largest shareholder in the HR outsourcing company. The New York-based activist fund also disclosed that it has delivered a letter to Paul J. Sarvadi, Insperity’s Chairman and Chief Executive Officer, and the Board of Directors of Insperity. The activist fund indicated that it looks forward to constructive dialogue with Insperity and the board regarding the company’s business and opportunities to create significant shareholder value.
In its letter to Insperity’s CEO, the activist fund said it believes the human resources company is deeply undervalued. The fund also believes that, despite Insperity’s favorable business characteristics and the compelling growth prospects for its industry, Insperity currently trades at a deep discount to its intrinsic value. Armed with the following data points, Starboard points out that over the past 1-, 3- and 5-year periods, Insperity has underperformed both its peer group and the broader stock market:
Highlighting the need to enhance execution, Starboard points out that over the past two years, Insperity’s average number of worksite employees has grown at a 1.7% annualized rate, while its revenue has grown 4.6%. However, the activist fund points out that these growth rates are substantially lower than those of the human resource company’s public peer group.
The activist fund notes that there is a meaningful opportunity to enhance the growth profile of Insperity through a combination of better management and better sales execution.
Starboard pushes for Insperity’s possible sale
In its letter, Starboard described Insperity as one of the world’s largest HR outsourcing companies with over $2.3 billion in revenue. In addition to pushing the company to consider selling itself, the activist fund also pushed for share buybacks and cost cuts, including selling two corporate jets. The activist fund also suggested that Insperity could enhance its executive compensation practices and its poison pill in addition to bifurcating the chairman and CEO roles.
Beth Jinks of Bloomberg points out that activist investors generally acquire equity stakes in publicly traded companies and then agitate executives and directors to make changes they believe will enhance shareholder returns. Jinks notes that once an activist buys a stake of over 5% in a company, they’re required to flag their intention to engage with management and the board by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.
As reported by ValueWalk last month, Starboard Value enhanced its stake in Office Depot Inc. and Staples, Inc. for a possible push for a merger of the two office supply chains.