SAC May Benefit From Blackstone’s Activism In Crocs

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SAC Capital Advisors disclosed a 5% passive stake in Crocs, Inc. (NASDAQ:CROX) on December 31, 2013, in a SEC filling. The firm held a 1.95% position in the niche footwear brand as of the third quarter of 2013. SAC Capital Advisors had a difficult 2013, as the hedge fund plead guilty to multiple counts of securities fraud, its founder Steven Cohen has an SEC order against him, and Michael Steinberg, once one of SAC’s top portfolio managers, was convicted on multiple counts of fraud.

Blackstone seeks to replace CEO and focus on earnings

The Blackstone Group L.P. (NYSE:BX) announced that it will invest in a $200 million convertible preferred stock offering that will facilitate the replacement of Crocs, Inc. (NASDAQ:CROX) CEO, John McCarvel, and a $350 million stock buyback. The convertible preferred stock will pay a cash dividend of 6% and it is convertible to stock at $14.50 per share. The conversion price is currently at a discount to the stock’s price, which closed at $16.10 on January 6, 2014. It could not be determined from the SEC filing by SAC Advisors if the hedge fund increased its stake in Crocs before or after the Blackstone announcement. If Blackstone’s investment in the preferred offering helps Crocs’ stock appreciate thanks to a successful buyback and management direction change, SAC Capital Advisors will benefit.

The Blackstone Group L.P. (NYSE:BX) could have a more active role in Crocs, Inc. (NASDAQ:CROX) management if the convertible preferred stock offering is successful and if it manages to get two seats in the firm’s board. Company strategy changes, according to Sam Poser, a Sterne Agee analyst, may include focusing on earnings growth instead of sales growth, closing some stores in U.S. in favor of opening stores in higher growth markets such as Asia, and being more innovative with products. Corinna Freedman, a Wedbush Securities analyst, highlighted that the two board seats that The Blackstone Group L.P. (NYSE:BX) could obtain will have veto power on the board and could shift the balance from management to shareholders. In Freedman’s view, the CEO search is not likely to be long as Blackstone probably has a slate of possible candidates. According to a Crocs, Inc. (NASDAQ:CROX) statement, the $350 million stock buyback will be done during 2014 in a “patient, methodical and opportunistic” manner.

Potential upside surprise could benefit SAC

Analyst ratings for Crocs, Inc. (NASDAQ:CROX) are 1 Strong Buy, and 7 Holds, according to The company estimates to post between $220 and $225 million in fourth quarter revenue and a diluted loss ranging from $0.20 to $0.23 per share. Consensus expects a diluted per share loss of $0.23 per share. For fiscal year 2013, analysts project $0.79 diluted gain per share, which translates into a negative 43.29% year over year growth rate. Because the sell side is not overly optimistic on Crocs, Inc. (NASDAQ:CROX), the stock could surprise on the upside if the management changes and stock buyback are properly executed.

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