Another Look At Nelson Peltz’s Next Activist Target by Stock Pucker
This will be quick, but as we work through the potential next activist target for Nelson Peltz, Stanley Black & Decker stands out.
Again, Emerson Electric is the widely expected target. As we noted this morning, the company has already hired a bank to look into a split of the company – are the being preemptive, or is Peltz already in David Farr’s ear?
The bigger point is – there are better targets. Peltz went “big” with DuPont. Taking on a $60 billion market cap company isn’t easy; Nelson Peltz needs a reset activist target that’s in the $10 billion to $20 billion range.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
Stanley Black & Decker is right at $16 billion, which means we’d likely be looking at a 13D campaign – recall the last one was in 2012 with the industrial company Ingersoll-Rand.
Stanley Black & Decker has three segments that could be broken up. The security business (padlocks, automatic doors, etc.) doesn’t fit with its construction and power-tool business. Plus, the security business represents less than a quarter of company-wide sales and margins are lower.
The cash return on capital invested is right at 9% for Stanley (and Textron – yesterday’s focus, is also sub 10%) but Emerson is already at nearly 16%. Getting rid of that lower-margin security business would help.
Rollups are en vogue – Peltz could leverage Stanley to become a consolidator of the construction tools industry. It would be relatively easy to load up the security business spinoff with debt and pocket the rest of cash to make deals.
But there again, Stanley Black & Decker shares are up 112% (total return) compared to Emerson’s 54% return. Yet, as we saw with DuPont, Peltz isn’t really concerned with past performance – it’s all about where the stock could be trading.
Part I – Textron: Nelson Peltz Activist Target