In a new filing with the Securities and Exchange Commission, Dan Loeb‘s Third Point disclosed a large activist stake in Baxter International Inc (NYSE:BAX) and a letter sent to the company’s Chairman and CEO Robert L. Parkinson and lead director Thomas Stallkamp. According to the filing, the investor owns around 37.92 million shares of the company, representing 7% of the outstanding stock. In the letter, Dan Loeb applauded the company’s latest performance and asked to appoint two representatives on the board of directors due to its large economic exposure to the company.
The investor met with Parkinson and Stallkamp last week to discuss the future plans of the company. Following the addition of Baxter to its equity portfolio, Third Point has become the largest shareholder of the company. Meanwhile, Baxter has done a number of steps that made it more attractive to investors in the last months, such as the spin-off of Baxalta in June. The letter added that Third Point is also pleased with the decision to implement a CEO succession plan and suggested to assist to this process with the addition of its representatives on the board of directors.
“[…] we are most impressed by your willingness to consider new Directors for the Board to compliment the new CEO. Given Third Point’s significant economic exposure – worth over $2 billion – we discussed nominating our representatives for two Board seats.”
Loeb added that Third point has an “excellent track record of participating on corporate boards and CEO search committees.” Due to the friendly nature of the letter and the fact that Third Point held a meeting with the company’s representatives, it’s most likely that Baxter will accept the investor’s proposal and will nominate its nominees on the board.
Meanwhile, the stock of Baxter International Inc (NYSE:BAX) has gained ground lately, having advanced by 9% in the last week. Year-to-date, the stock inched up by 1.24%, even though it dipped around the spin-off of Baxalta Inc (NYSE:BXLT). Baxalta is Baxter’s former specialty drug-focused arm and it gained around 10% since it went public as an independent company. Yesterday, Shire PLC (ADR) (NASDAQ:SHPG) released a statement in which it said that it had made an offer to acquire Baxalta Inc (NYSE:BXLT) before the spin-off, but Baxter refused to engage in discussions.
Following the spin-off of Baxalta, Baxter International Inc (NYSE:BAX) has been focusing on medical devices and supplies for hospitals. However, the investor considers that its “staggered Board” is “shareholder unfriendly and archaic” due to its voting structure that values shareholders individually.
“We believe most shareholders agree with our views and as it turns out, so do you. We are confident that by working together, we will ensure shareholders can elect all directors at the 2016 annual meeting, including our representatives,” Dan Loeb added.
At the end of last month, Baxter International Inc (NYSE:BAX) announced its financial results for the second quarter of 2015, which included revenue of $3.89 billion, down from $4.15 billion a year earlier, and a 28% annual decline in EPS to $0.62. For the current quarter, the company expects a 3% growth in sales over the year and EPS in the range between $0.29 and $0.31.
The last round of 13F filings showed a significant increase in bullish sentiment from hedge funds, which might grow even further with the involvement of a great activist like Dan Loeb. Overall, 50 funds held long positions in the company at the end of March, with an aggregate value of $1.47 billion, versus 35 funds with $782.39 million worth of stock a quarter earlier. The involvement of an activist generally suggests an increase in shareholder value, which is also supported by stronger return of activists, compared to their passive peers.
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Aside from Loeb, other top shareholders of Baxter International Inc (NYSE:BAX) include Richard S. Pzena’s Pzena Investment Management, which owns 5.03 million shares as of the end of March. Trailing Pzena by a huge margin are Jim Simons’ Renaissance Technologies and Ric Dillon’s Diamond Hill Capital with 1.95 million shares and 1.75 million shares respectively.
Dan Loeb is indeed an activist investor with a great track record. It was one of the key players that overhauled operations at Yahoo! Inc. (NASDAQ:YHOO), which led to the appointment of CEO Marissa Mayer. Loeb also conducted a fierce activist campaign against Sothebys (NYSE:BID)’s governance, which ended with an agreement to appoint two of Loeb’s representatives on Sotheby’s board, in exchange for the investor maintaining a 15% stake in the company. Sotheby did not replace its CEO William Ruprecht until earlier this year, when he retired and Tad Smith was appointed as President and CEO. As of the end of March, Loeb’s largest holdings are represented by Amgen, Inc. (NASDAQ:AMGN), Actavis (currently known as Allergan PLC (NYSE:AGN)), and Dow Chemical Co (NYSE:DOW). The investor owns an equity portfolio of $10.95 billion, according to its last 13F filing.
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