Activists Are Ganging Up On United Technologies (UTX), Energen (EGN), and Newell Brands (NWL)

When a lone prominent activist takes aim at a company, investors should pay attention. When two or more of them team up to take on the same company? Expect a lot of fireworks.

While activist investors have their detractors, who often accuse them of putting short-term shareholder returns above the long-term welfare of a company and its employees, it’s undeniable that they bring a fresh perspective and a new level of accountability to companies. A recent study by the Warwick Business School showed that CEO pay falls by an average of $350,000 in the year after activists take a position in a company’s stock.

Nonetheless, more and more voices in recent years, including the CEO of $5 trillion asset management firm Vanguard, have been calling for companies to push back against activist campaigns. That appeared to be the case in 2017, as fewer companies gave in to activists’ demands and activists suffered defeats in three of the biggest proxy contests of the year, which included Procter & Gamble Corporation (NYSE:PG) spending as much as $100 million to defeat Nelson Peltz.

In light of that, activists appear to be trying a new tactic with greater frequency: joint activist campaigns. Below, we’ll look at three such campaigns that are currently taking place, which involve United Technologies Corporation (NYSE:UTX), Energen Corporation (NYSE:EGN), and Newell Brands Inc. (NYSE:NWL).

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United Technologies Corporation (NYSE:UTX)

Bill Ackman of Pershing Square and Dan Loeb of Third Point have both taken aim at United Technologies Corporation (NYSE:UTX), with the joint goal of breaking up the company. Third Point opened a 7.1 million-share stake in the company during the first-quarter and discussed its recent underperformance in the fund’s first-quarter investor letter. United Technologies trails its industrial peers by nearly 45% over the past five years despite market-leading assets within each of its business segments. Third Point stated that the company should be split into three separate businesses.

Ackman also opened a large United Technologies Corporation (NYSE:UTX) stake in the first-quarter (1.94 million shares) and recently revealed that he wants the same thing for the company as Loeb does: for it to be split into three businesses. In his own first-quarter letter, Ackman praised the company’s business portfolio, calling it one of the most advantaged in the multi-industrial sector, while lamenting the company’s undervalued stock, which trades at just 16x Pershing Square’s 2018 earnings estimates for the company, well below the fund’s estimate of the company’s underlying value.

For its part, United Technologies Corporation (NYSE:UTX) is conducting a portfolio review that it expects to be completed this year, and has stated that it will consider the option of a split. However, Loeb believes that the company is showing less interest in a split than might be expected. Time will tell if an activist double-team changes the company’s mind.

On the next page we’ll look at two other stocks that prominent activist investors are ganging up on.

Energen Corporation (NYSE:EGN)

Carl Icahn of Icahn Capital is the latest activist to throw his hat into the Energen Corporation (NYSE:EGN) ring, joining protege Keith Meister of Corvex Capital and Paul Singer‘s Elliott Management as activists with an eye on seeing the company sold. Meister has been engaged in that battle for over a year and won two board seats in March (one of which was awarded to a former Icahn Capital managing director) while the company continues to undergo a strategic review.

On Monday, a filing revealed that Icahn Capital will purchase 2 million of Corvex’s 10.46 million shares, with an option to buy an additional 2 million shares, signaling that the famed activist could be interested in purchasing the company alongside Corvex (which has stated a desire to do so), though Icahn has stated that he doesn’t believe he is the right buyer for the company, given the lack of synergies that could be exploited. At the least, his looming presence could put more pressure on Energen Corporation (NYSE:EGN) to consider a sale as it conducts its review.

Newell Brands Inc. (NYSE:NWL)

Icahn is also involved with Newell Brands Inc. (NYSE:NWL) alongside Jeffrey Smith‘s Starboard Value, one of the most successful activist funds of the past decade. Starboard took a $473 million position (18.58 million shares) in Newell in the first-quarter and immediately launched a proxy contest to have the company’s CEO and entire board removed. That put it squarely against Icahn initially, as four of those board sits were given to Icahn in March.

However, Icahn agreed to give up two of those seats last month in a major board shuffle that included three nominees of Starboard’s being added to the board. Icahn believes the interests of the two funds are aligned with regards to Newell, which is why it made more sense for them to work together than to engage in a costly proxy contest.

Starboard released a detail presentation on Newell at the beginning of May in which it expressed that first and foremost, the company’s operational performance needed improvement. While Newell has often blamed its recent underwhelming results on a tough macro environment, Starboard believes that is not the case at all, pointing to the revenue growth and higher margins that Newell’s peers have enjoyed, while Newell’s own results have deteriorated since its acquisition of Jarden. Starboard took aim at the company’s highly inefficient R&D process, bloated expenses, and the lack of effective communication between its different divisions as just some of the reasons for Newell’s lagging results.

Disclosure: None