Cognoscenti of activist investing,
Today’s edition is a short story (borderline novel) and verbose heavy, so it’s best to save this one for your two-hour lunch break. Send us tips via Twitter at @activiststocks or email, and sign up for our daily newsletter.
News:
- Mario Gabelli, who’s a 13D filing fool, revealed that his GAMCO has upped its stake in Navistar by 40% to over 10M share, roughly 12.3% of the company.
- H Partners again continues with the Tempur Pedic bashing. Noting that in its proxy filing it said, “CEO Mr. Sarvary has caused the Issuer to underperform its self-selected peer group by 140% in the past three years and by 175% in the past five years due to his repeated execution errors.”
- Longitude Capital dumped about a third of its Esperion Therapeutics position. The stock’s down 15% over the last week to sub-$90 a share, but Longitude was getting out above $110. It still owns just under 5% of the biopharma company.
Stories:
- Billy Ackman’s Pershing Square shareholder letter for 2014 hit the wire late yesterday afternoon. After throwing in a Kraft buyout, finance Twitter was in a masbatorial frenzy last night. I’ll keep this one short, here’s two standout passages from the letter. On activism, Bill writes, “We believe that these larger businesses generally offer greater opportunities for the kinds of corporate change that we often pursue. This is due to the fact that these large enterprises have not been owned by active investors historically and have been largely insulated from private equity and other unsolicited investors because of their scale.” On shorting, “Our favorite short opportunities are companies that are highly leveraged, need access to capital to survive, require substantial management judgment in the determination of their reported earnings, and have fundamentally bad business models. These criteria have led us to short investments in the financial service industry, principally insurance or credit guarantee businesses. For equity shorts, we have an additional criterion which requires that there is a “ceiling on valuation.” A ceiling on valuation is what we deem to be the equivalent of a margin of safety for long investments [link to Pershing’s letter]
- Keeping with the short theme, @Y0ungMoneyBlog put out a piece on how the groupie-esque nature of activist short sellers is a negative. It’s essentially a rebuttal to the In Praise of Short Sellers piece that ole Jimmy Surowiecki of @NewYorker penned last week, in which, Jim revealed himself as a Whitney Tilson fanboy. The key is that many activist short sellers have made a name for themselves by exposing Chinese and other easy frauds. They now have large followings that they can use to move the stock prices of companies just by making allegations. But many of the easy Chinese frauds have already been exposed. What we’re left with is many activists shorts going after too few frauds, which means there’s an increasing number of miscalculations and false allegations. Of course, Tilson is on everyone’s hit list these days, including @maxvision33’s, but Y0ung also takes to task other activist shorts that got notoriety for targeting easy frauds. Basically, it’s time for the likes of @GeoInvesting and @GothamResearch to step up their activist game. Hell, if The Motley Fool (via @TMFVelvetHammer) is getting some love, things must be pretty dire when it comes to activist shorts [link]
- @valuewalk has upped their activist game, putting out two pieces over the last day courtesy of @MJonesValueWalk. The latest is about how to fend off activist investors. In this, the idea is that major mutual funds, like that of Vanguard, will no longer be entirely passive. Recall that Vanguard sent a letter to all the companies that it has a stake in, noting that it will not simply abstain its vote on certain shareholder issues, but rather will start voting no. It’ll also become more aggressive when it comes to ousting long-tenured board members. This whole idea of “proxy access,” which allows shareholders that own 3% or more for 3 or more years to nominate board members, isn’t a move to open the board room to activist investors; rather, it’s more of a move to help get institutional investors on their side before an activist comes knocking [link]
- The next ValueWalk piece is a broader overview, with the theme being how activists are focusing on the services sector, but it also touches on the rise of spinoffs. The services sector is hot right now because of the idea of forming a REIT for their properties. But one thing I think many fail to notice is that while there’s a lot of talk of creating a REIT, very few companies have actually pulled it off. Then, on the notion of spinoffs, Carl Icahn is the feature here with his recent work at eBay, Manitowoc and Gannett. With regard to spinoffs, there’s a corporate governance trend we’ve been in the pulpit preaching about for some time, “His [Icahn’s] demands are interesting in the way they deal with corporate governance and opening up the SpinCos to potential hostile takeovers” [link]
- Has activist investing gone too far? @EmilyStewartM puts forth some interesting info on nonprofits becoming more active in public companies. PETA owns shares of Shake Shack in an effort to push for the addition of vegan options to its menu. PETA has also put forth a shareholder proposal at Domino’s to add vegan cheese. Then, in a more interesting twist, a grassroots group, Earth Quaker, has put pressure on companies involved in mountaintop removal of coal by taking aim at banks like PNC to prevent financing of their capital-intensive activities [link]
- @marketfolly notes that Pershing Square is set to increase its Valeant Pharma stake. It reported a passive 4.9% stake of just under 16.5M shares earlier this month. But per marketfolly, “Valeant recently announced it would sell around $1.45 billion in new shares to fund its takeover of Salix Pharmaceuticals…Pershing Square Capital Management LP is buying 3 million shares in the offering worth about $600 million” [link]
