Starboard Value, run by Jeffrey Smith, is one of the most famous activist hedge funds and is well known to the investment community. The fund registered a resounding success in its activist efforts with Darden Restaurants, Inc. (NYSE:DRI), having managed a complete overhaul of the company’s board of directors. It has also led the efforts to merge Yahoo! with AOL. Although it did not go according to plan, in the end Smith got what he wanted when Verizon Communications Inc. (NYSE:VZ) acquired Yahoo! in 2016, having previously bought AOL as well.
Although Smith and Starboard are currently embroiled in a proxy battle for Mellanox Technologies, Ltd. (NASDAQ:MLNX) board of directors, there is no doubt they are also preparing the field for future activist efforts. Insider Monkey has analyzed Starboard’s latest 13F filing, looking for potential targets.
First we will take a look at Bemis Company Inc (NYSE:BMS), a manufacturer of packaging products. The company has been active since 1858 and is currently operating in two segments: U.S. Packaging, which accounts for 65% of sales, and Global Packaging, which makes up 35% of sales. Bemis’ major customers include industry giants like Kraft Heinz Foods Co (NYSE:HNZ), Allergan plc Ordinary Shares (NYSE:AGN) and Procter & Gamble Co (NYSE:PG).
Starboard first disclosed a stake in Bemis Company Inc (NYSE:BMS) back in November 2018 when it issued its 13F filing for the 2017 third quarter. The fund acquired exactly 1.5 million shares and added a further 630,000 shares during the subsequent quarter to amass roughly 2.34% of the company’s outstanding stock. It is yet unclear whether Jeffrey Smith is planning to make a move, since Starboard has not yet submitted a 13D filing, which is usually the case with activist positions.
Industry and Stock Performance
According to data by Fidelity, the Containers & Packaging has registered a 12.9% growth in the past 13 months, compared to the S&P500 index’s 16.5 rise, with revenues increasing by 9.17%. Bemis’ stock, on the other hand, has tanked 8.65% during the same period of time. The stock has also been overshadowed by competitors such as Graphic Packaging Holding Company (NYSE:GPK), which rose by 11.6%, and Owens-Illinois Inc (NYSE:OI), currently up by 7.2%, in the past twelve months.
Bemis Financials
In the beginning of February, Bemis Company Inc (NYSE:BMS) has announced a 35th consecutive annual dividend increase, raising its quarterly dividend to $0.31 per share from $0.3 per share, providing shareholders with a 2.8% yield. On an annual basis, the company’s revenues had been falling for a long time, however 2017 was the year it managed to break the trend. Bemis reported $4.05 billion in revenues for the year, which surpassed 2016 sales which came in at a little over $4 billion.
Last year, Bemis introduced an improvement plan called “Agility”, embarking on a restructuring and cost cutting plan which aims to generate a total of $65 million in pre-tax annual savings. Bemis is also looking to change its organizational structure and focus more of its R&D efforts towards manufacturing improvements in a bid to strengthen and grow its business. The management promised shareholder it would consider selling the company should it fail to complete the Agility plan. Although Bemis has put the plan to action and has already registered the first positive results, as long as Starboard is keeping an eye on Bemis, one can never rule out a potential sale of the company.
Opportunities in Real Estate
One would expect Jeffrey Smith and Starboard to be the ones pushing a company to sell itself rather than joining the fray when the company is already in negotiations, but that’s what apparently happened with Forest City Realty Trust Inc (NYSE:FCE.A). In its latest quarterly filings, the fund indicated ownership of 5.33 million shares, up 59% from the previous quarter. However, since there was no 13D filing, we cannot say for sure if Jeffrey Smith has in any way influenced Forest City’s decision to sell itself.
On January 31, Brookfield Asset Management Inc announced it is in talks to acquire Forest City Realty Trust Inc (NYSE:FCE.A). Although the actual price was not disclosed, it is believed to have been at a very low premium compared to where the stock was trading when the talks were announced. The Cleveland-based Real Estate Investment Trust had been the target of activist investor Land & Buildings Investment Management, led by Jonathan Litt, a former real estate analyst. Land & Buildings has advocated for a sale of the company and has said in a letter dated April 2017 that Forest City would attract numerous bidders. Land & Buildings has since sold its stake. In September 2017, the company said it would consider selling itself as an option to increase shareholder value.
According to Bloomberg, Brookfield offered to pay approximately $6.4 billion for Forest City Realty Trust Inc (NYSE:FCE.A) or $23.95 per share. A recent report by BMO Capital Markets estimates Forest City’s net asset value at $28.69 per share. So, it is very likely that the company will reject Brookfield’s offer. If Smith and Starboard go activist, we could expect Forest City to drive a harder bargain.
Value in Unappealing Retail Real Estate?
Another Real Estate Investment Trust that has caught Jeffrey Smith’s eye is Macerich Co (NYSE:MAC), one of the largest owners and managers of shopping centers in the United States. During the 2017 fourth quarter, Starboard increased its stake in Macerich by 20% to 600,000 shares. Activists Dan Loeb and Jonathan Litt are also invested in the company. According to the latest regulatory filings, Loeb’s Third Point holds 1.42 million shares, while Litt’s Land & Buildings Investment Management has initiated a fresh stake during the fourth quarter, having acquired 453,834 shares.
Back in November 2017, news emerged that Macerich Co (NYSE:MAC) adopted a new cash-severance plan for senior executives. Whereas before this move top executives faced getting almost nothing in severance pay in case they lost their jobs following a sale of the company, the new plan insure they would split $32 million in compensation should they leave the company or lose their jobs within two years of a change in control. Investors took this as a sign that Macerich Co (NYSE:MAC) was gearing up for a sale. According to a January report by Bloomberg, Ontario Teachers’ Pension Plan Board, which is the company’s largest shareholder, is gathering support for a takeover.
Disclosure: none.
