Fuel Systems Solutions, Inc. (NASDAQ:FSYS) and Westport Innovations Inc. (USA)(NASDAQ:WPRT) announced on Tuesday that they have entered into a merger agreement under which the latter will be acquiring the former. Matthew Drapkin and Steven R. Becker‘s Becker Drapkin Management, which owns over 1.89 million shares or about 10.47% of the outstanding shares of Fuel Systems Solutions, Inc. (NASDAQ:FSYS), submitted a 13D filing following the announcement in which it revealed that it has entered into an agreement with Westport Innovations Inc. (USA)(NASDAQ:WPRT) to vote in favor of this merger, at any Fuel Systems Solutions, Inc. (NASDAQ:FSYS) shareholders’ meeting that takes place before the termination of the voting agreement. In a separate 13D filing, Glenn W. Welling‘s Engaged Capital, which was the largest shareholder of Medifast Inc (NYSE:MED) among the hedge funds that we track at the end of June, revealed that it has purchased an additional 1,199 shares of the company. Following this purchase, Engaged Capital now owns 737,465 shares or 6.1% of the outstanding shares of Medifast Inc (NYSE:MED).
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. 57.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
Matthew Drapkin and Steven R. Becker founded Becker Drapkin Management, a Dallas, Texas-based activist hedge fund, in 2004. The fund mostly invests in small-caps or companies with valuations of less than $500 million, and primarily uses value-focused strategies. Since its inception, the fund has gone activist on several small-cap companies, which includes EMCORE Corporation (NASDAQ:EMKR) and Ruby Tuesday, Inc. (NYSE:RT). Its U.S public equity portfolio was worth $114.64 million as of June 30.
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Fuel Systems Solutions, Inc. (NASDAQ:FSYS) is a New York-based alternative fuel systems provider for industrial, refueling, and transportation applications around the globe. After remaining almost flat for the first four months of 2015, shares of the company have fallen significantly following the disastrous first quarter results it announced on May 7, and it currently trades down by 44.4% year-to-date. Since the news broke on Tuesday that it would be acquired, Fuel Systems’ shares have actually fallen by over 10%, a rarity for an acquired company’s shares. Under the terms of the deal, Fuel Systems Solutions, Inc. (NASDAQ:FSYS)’s shareholder will be receiving 2.129 shares of Westport Innovations Inc. (USA)(NASDAQ:WPRT) for every one share of Fuel Systems Solutions, Inc. (NASDAQ:FSYS) that they own. Several analysts and industry experts have raised concerns over this acquisition, arguing that it might not be in the best interests of Fuel Systems Solutions, Inc. (NASDAQ:FSYS)’s shareholders. On September 2, analysts at Canaccord Genuity reiterated their ‘Hold’ rating on the stock, with an $8 price target. After Becker Drapkin Management, Chuck Royce‘s Royce & Associates was the second-largest shareholder of Fuel Systems Solutions, Inc. (NASDAQ:FSYS) in our database, owning slightly above 1.2 million shares.
Moving on to another activist hedge fund, Engaged Capital, which was founded in 2012 by Glenn W. Welling in Newport, California. Prior to founding Engaged, Mr. Welling served as the Managing Director of Research at Relational Investors, another hedge fund, from June 2008 until October 2011. Like Becker Drapkin Management, Engaged Capital also uses value-focused strategies and primarily invests in small-cap companies. Some of the companies in which the fund has gone activist on include AeroVironment, Inc. (NASDAQ:AVAV) and Magnachip Semiconductor Corp (NYSE:MX). As of June 30, Engaged Capital’s U.S public equity portfolio was worth $173.82 million.
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Medifast Inc (NYSE:MED) is a Maryland-based manufacturer of weight loss and other dietary products. In April, the company underwent a major Board overhaul under which eight members left the company’s Board, while the size of the Board was reduced to nine from 12. After this Board overhaul was announced, Michael C. MacDonald, the CEO of Medifast Inc (NYSE:MED) acknowledged that Engaged Capital played a major role in the transformation. Shares of the company plummeted significantly after it reported its second quarter results on August 5 and currently trade down by 17.36% year-to-date. After the latest quarterly results were released, Canaccord Genuity’s analysts reiterated their ‘Hold’ rating on the stock, with a $34 price target, which represents a potential 22.5% upside to the stock’s current price. Peter S. Park‘s Park West Asset Management initiated a stake in the company of 358,719 shares during the April-June period.
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