Activist Puts Pressure on iRobot Corporation (IRBT), While Point72 and Lone Pine Load Up on These 2 Stocks

In three separate filings made with the U.S. Securities and Exchange Commission, Willem Mesdag’s Red Mountain Capital, Steve Cohen’s Point72 Asset Management, and Stephen Mandel’s Lone Pine Capital reported their latest moves regarding iRobot Corporation (NASDAQ:IRBT), Globe Specialty Metals Inc (NASDAQ:GSM), and Williams Companies Inc (NYSE:WMB), respectively. In an amended filing, Red Mountain Capital disclosed a letter it delivered to iRobot’s Chairman and Chief Executive Officer Colin Angle and the company’s Board of Directors, proposing a value enhancement plan and urging the Board to consider all other paths to maximize shareholder value, including a sale of the company. Point72 Asset Management, in a separate filing, disclosed raising its position in Globe Specialty Metals to 3.72 million shares, while Lone Pine Capital in its filing reported a 5.6% passive stake in Williams Companies Inc (NYSE:WMB). We’ll be discussing all of these moves in detail below.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

Let’s first discuss Red Mountain Capital’s letter to iRobot Corporation (NASDAQ:IRBT), in which the investor holds 1.78 million shares, representing 6.1% of the company’s common stock. In the letter, Red Mountain detailed iRobot Corporation’s history of poor stock performance, lack of capital allocation discipline, and anti-shareholder corporate governance practices. In addition, the fund outlined a value enhancement plan to make the company profitable, creating substantial long-term value for shareholders.

Further, Red Mountain states in the letter that iRobot Corporation needs to focus on the high-growth Home Robots business and the consumer end-market, while exploring strategic alternatives for the Defense and Security business. The investor is urging the company to discontinue the Remote Presence business, allocate capital with discipline and an intense focus on risk-adjusted returns, and address significant lapses in corporate governance. Moreover, Red Mountain wants the company’s Board to voluntarily add new Independent Directors to ensure that shareholder interests are represented in the boardroom.

iRobot Corporation (NASDAQ:IRBT) is engaged in delivering robotic technology-based solutions. Shares of the company have lost 3.86% year-to-date. For the third quarter, iRobot’s profit slipped to $12.8 million compared with $14.6 million a year prior to that. The company’s shares was held in the portfolios of ten hedge funds in our database at the end of the third quarter, down from 13 funds at the end of second quarter. Chuck Royce’s Royce & Associates held 166,000 shares as of the end of September.

We’ll talk about the latest moves made by Point72 Asset Management and Lone Pine Capital on the next page.

In a separate filing, Point72 disclosed holding 3.72 million shares of Globe Specialty Metals Inc (NASDAQ:GSM), representing an increase from 497,200 shares held at the end of September. The stake is equivalent to 5.0% of the company’s common stock. Point72 Asset Management is a family office that manages the assets of its founder, Steven A. Cohen, and other eligible employees. Point72 is considered the descendant of SAC Capital Advisors, Cohen’s hedge fund that stopped managing money for outside investors in early 2014. Cohen’s long/short investment firm oversees a public equity portfolio worth $12.74 billion as of September 30.

Having a market cap of $773.13 million, Globe Specialty Metals Inc. (NASDAQ:GSM) produces silicon metal and silicon-based alloys. In September, shareholders of GSM approved the company’s proposed combination with Grupo FerroAtlántica to create a top international silicon and specialty metals producer. The deal, creating a new holding company named Ferroglobe PLC, is expected to close before the end of this year. Other large shareholders of Globe Specialty Metals include Clifton S. Robbins’ Blue Harbour Group and Phill Gross and Robert Atchinson’s Adage Capital Management, holding 7.0 million shares and 2.31 million shares, respectively, as of the end of September.

In the third filing, Tiger cub Stephen Mandel’s Lone Pine Capital disclosed holding 41.97 million Williams Companies shares, an increase from 17.68 million shares the investor held at the end of the third quarter. The stake equates to 5.6% of the company’s common stock, and is passive by nature. Lone Pine Capital’s funds, Cypress, Kauri, Cascade, and Tamarack, lost between 3% and 4% during the third quarter, but still managed to outperform the S&P 500 and the MSCI World Index during this period. The funds are still in the green in year-to-date terms according to Lone Pine’s letter to investors for the third quarter.

Williams Companies Inc (NYSE:WMB) operates energy infrastructure across North America. The company owns about a 60% stake in Williams Partners LP (NYSE:WPZ). Last month, Williams Companies announced attaining approval from the Federal Energy Regulatory Commission for Gulf Trace, a 1.2 million dekatherm per day expansion of the Transco pipeline system to serve the Cheniere Energy Partners’ Sabine Pass Liquefaction project, which is under development in Cameron Parish, Louisiana. The LNG export terminal, which is expected to be ready in late 2015, will connect U.S natural gas supplies with global LNG markets. Once complete, the Sabine Pass liquefaction terminal will be the first large-scale LNG export facility in operation in the United States, with an expected nominal production capacity of 27 million tonnes per annum. Williams Companies Inc (NYSE:WMB)’s stock has dropped by 22.14% year-to-date. Other investor betting big on Williams include Keith Meister’s Corvex Capital, holding 41.68 million shares, and Eric W. Mandelblatt’s Soroban Capital Partners, with ownership of 21 million shares.

Disclosure: None