Elliott Management Corporation announced that its funds collectively own 8.4% stake in American Capital, a global private equity firm. In its 13D filing with the Securities and Exchange Commission (SEC), Elliott indicated that it sent a letter to Board of Directors of American Capital expressing its opposition to the planned spinoff.
Elliott said spinoff would put American Capital’s valuable assets at risk
American Capital plans to spinoff its BDC assets into a new business development company and to create a stand-alone, external asset manager.
According to Elliott, the planned spinoff would put the valuable assets of American Capital at risk, and it would significantly limit options for shareholder value creation in the future.
Elliott said the proposal of American Capital’s Board came after years of value destruction. The activist investor noted that the shares of the private equity firm traded at a median price to net asset value of 71% since the beginning of 2011 compared to 115% for comparable BDCs.
The activist investor emphasized that American Capital underperformed because of the following reasons:
- ineffective management driving low valuation,
- poor capital deployment, directors lack qualification to oversee the management
- Compensation the rewards failure
- Excessive overhead
“Management’s spin-off plan exacerbates these issues, by further entrenching an ineffective management team, establishing a sub-scale investment management platform with questionable ability to deliver stockholder returns and permanently squandering the company’s opportunity to fully optimize ACAS’ existing platform and realize meaningful upside,” according to Elliott.
Elliott plans to urge its fellow shareholders to vote against the proposal of American Capital’s Board of Directors.
Elliott’s proposal to American Capital
Elliott devoted substantial resources to examining American Capital’s portfolio and planned spinoff over the past several months. The activist investor believed that the shares of the company could be worth more than $23.
Elliott is proposing a five-step plan to American Capital to increase shareholder value. Its proposal included the following
1.) American Capital’s withdrawal of the spinoff proposal
2.) Strengthening the company’s Board adding highly qualified independent members with relevant experience and fresh perspectives
3.) Engaging advisors to perform a comprehensive review of company’s portfolio and capital allocation policies
4.) Engaging in a systemic cost cutting initiative with a commitment to reduce costs by $50-75 million per year
5.) Establishing a Strategic Review Committee lead by new directors, and advised by qualified independent outside counsel and bankers, to explore all available options to maximize stockholder value
See Elliott’s full presentation here – a15-23495_3ex1