Our profile in this month’s issue of Activist Insight Monthly is with Jeff Ubben, who recently shocked the activist community by taking his environmental and socially-focused Spring Fund outside of ValueAct Capital Partners, the firm he founded two decades ago. Under a new banner – that of Inclusive Capital Partners – he will have plenty of surprises up his sleeve and may face a few himself as he battles to change the way investors think about valuing companies and steer them away from short-term activist investing.
Jeff Ubben Helping Investors Steer Away From Activist Investing With The Help Of Inclusive Capital Partners
Here’s the key part of his argument, via Jason Booth:
At this year's SALT New York conference, Jean Hynes, the CEO of Wellington Management, took to the stage to discuss the role of active management in today's investment environment. Hynes succeeded Brendan Swords as the CEO of Wellington at the end of June after nearly 30 years at the firm. Wellington is one of the Read More
The financial constraints that once made it necessary, and profitable, for a shareholder activist to demand operational efficiencies at portfolio companies are no longer there. Today, "anyone can leverage up to buy competitors and that is what they have done," Ubben said, noting that capital was no longer the scarce resource it was when he began investing. "If anyone can do it, it is a low-return activity, the abundant resource never drives excess return."
So rather than take the kind of long-term investment approach that ValueAct employed at companies like Microsoft and Adobe, Ubben complained that most activists today simply push for a quick company sale in order to benefit from a short-term bump in the share price. Over the next ten years, he predicted, the companies "that nail environmental and social returns," will outperform, "as that is where there is a constraint."
The full interview will only be available for subscribers of Activist Insight Monthly, so make sure you tell your subscriptions manager to get you connected!
Takeover Battle At CoreLogic Is Entering A New Stage
At CoreLogic, a takeover battle is finally moving into a new stage. As of July 29 2020, Cannae Holdings and Senator Investment Group have nominated nine directors for election to CoreLogic’s board, frustrated with the company’s rejection of their takeover bid but also the recent defense maneuvers.
Cannae and Senator, owners of a combined 15% stake in CoreLogic up until Monday, confirmed they are targeting a majority of the company’s board seats not to force through their $65 per share bid but to put in place "nine independent directors who will act in the best interest of all shareholders." The property data and analytics company’s board has 12 members.
Remarkably little has happened since June 25, when Cannae Holdings, a private equity firm, and Senator Investment Group, an activist investor showed up with a takeover offer worth $65 per share. A month ago, the company rejected that bid while at the same time authorizing a poison pill and a $1 billion share repurchase plan. Since then, it has refused to provide access to non-public information for due diligence "unless they first raise their offer to a level that provides appropriate value to our shareholders."
A traditional financial sponsor would find itself at a stalemate in such circumstances and probably walk. According to the activists, they cannot raise their bid, despite being "open-minded" about the company’s valuation, without inside information. "Over the past years, the company has re-segmented financials and discontinued reporting of certain [key performance indicators] multiple times," they say, by way of example. "While on multiple earnings calls the company has referred to growth excluding mortgage market impact as ‘essentially flat,’ we calculate that growth has actually been negative."
To break the deadlock, the would-be suitors plan to replace three-quarters of the board with new independent directors via a special meeting in early October (first they must call the meeting via a consent solicitation, although with only a handful of shares required, that should be a formality). But the IT services company is holding fast, saying that its board and management had met with Cannae and Senator, and publicly available information should be adequate to formulate a higher offer. According to CoreLogic, updated guidance should give a value "far in excess" of the $65 per share offer, and the investors had bought some of their shares at over $68 per share, indicating that they believed the company was worth more.
Whether shareholders will be able to separate the $65 per share figure from their faith in the new directors to negotiate an offer that will leave everyone happy is going to be the question that keeps everyone busy for the next two months.
Quote Of The Week
Quote of the week comes from Dan Loeb in Third Point Partners’ second-quarter investor letter. The veteran activist, who recently retook sole control of the hedge fund’s portfolio, shared some thoughts on why event-driven investing that ignored the importance of business quality and valuation was no longer adequate:
"To be clear, investing in compounders and event‐driven situations are not mutually exclusive activities. It has been our experience that our event‐driven focus provides us with a unique window into the creation or evolution of a quality company, since they are often born out of corporate events or management changes. As we discuss in the equity section below, recent market dislocations have created several unique opportunities for us to acquire more of these kinds of companies at bargain prices."