Could Western Union Be The Next Activist Target?

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With a vulnerable board overseeing a laggard stock in a corporation that generates plenty of cash, activist investors have a chance to overhaul The Western Union Company (NYSE:WU)’s board, should any be interested, notes a Bloomberg report by Tara Lachapelle.

The Englewood, Colorado-based company’s annual shareholder meetings tends to be held in May, implying the 30-day window to nominate directors will begin in January.

Western Union vulnerable to activism

The share price of The Western Union Company (NYSE:WU) has seen several large swings since it was spun off from First Data Corp. in 2006. Its $5 billion-plus buybacks have not had much of an impact on the stock price.

Citing Susquehanna Financial Group LLP, the Bloomberg report points out that Western Union’s management or an activist could enhance shareholder value by shifting the buyback funds towards a larger dividend. Alternatively, the firm could spin off or sell its non-core business-to-business division, which could fetch at least $400 million based on similar transactions.

Joseph Stauff, a New York-based analyst on Susquehanna’s event-driven/special situations team, believes the de-staggered board “suggests to us that the management team is vulnerable to some level of activism”.

Larry Berlin, a Chicago-based analyst at First Analysis Corp., said “The stock hasn’t performed as well as many would hope and there have been issues for the last couple of years. He added: “Management is trying to adjust to it, but activists always think they can adjust faster”.

Spin-off could benefit

Joseph Stauff of Susquehanna Financial Group LLP suggests The Western Union Company (NYSE:WU) spin off or sell the business-to-business segment. He believes recent comparable transactions imply it might be worth $400 million to $2 billion. He also suggests the option to explore selling some shares in the digital business so that its valuation is more in line with peers such as Xoom Corp.

Not all analysts concur with the new thought process. Although BTIG LLC’s Mark Palmer agrees that Western Union shares are undervalued, he doesn’t think these moves are the answer.

As reported by us, last year Xoom Corp (NASDAQ:XOOM), which enables customers wire cash across borders via the Web, jumped 35% on the Nasdaq, opening at $25 with a 31% increase from its $15 offer price.

In its regulatory filing in August, Abrams Capital Management disclosed Western Union remained its largest holdings for the fourth consecutive quarter. The hedge fund enhanced its position by 4,065,000 shares or 23.41%. With the purchase, Western Union now represents 26.31% of the aggregate portfolio of the hedge fund.

Tara Lachapelle of Bloomberg points out Western Union’s current directors include Roberto Mendoza, who helped transform the former JPMorgan Chase & Co. (NYSE:JPM) into an investment bank, and Linda Fayne Levinson, the current chairman of Hertz Global Holdings, Inc. (NYSE:HTZ). Levinson is contending with two activist shareholders in Hertz: Carl Icahn and Jana Partners LLC.

Of note, Dan Diaz, a spokesman for The Western Union Company (NYSE:WU), said in an e-mailed statement yesterday that the Englewood, Colorado-based company is “continuing to focus on strengthening our consumer money transfer business, with emphasis on digital expansion; driving growth in business solutions; and generating and deploying strong cash flow for our shareholders.”

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