Five Companies to Benefit from Activist Starboard Value’s Involvement in 2017

Jeffrey Smith‘s Starboard Value, one of the biggest and most famous activist hedge funds, has recently filed its 13F, in which it reported an equity portfolio worth $3.39 billion as of the end of 2016, slightly down from $3.68 billion a quarter earlier. The portfolio is focused on tech, healthcare and consumer stocks. During the fourth quarter, the investor initiated stakes in six companies and exited seven positions. In this article, we are going to take a closer look at Starboard’s largest bullish moves and new positions in five stocks, including Perrigo Company plc (NYSE:PRGO), Baxter International Inc (NYSE:BAX), Rockwell Collins, Inc. (NYSE:COL), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and Tribune Media Co (NYSE:TRCO).

Starboard is known for a number of successful campaigns, such as the one in Darden Restaurants, Inc. (NYSE:DRI) which ended with the overhaul of the company’s entire board of directors. The fund also pushed Office Depot Inc (NASDAQ:ODP) and Staples, Inc. (NASDAQ:SPLS) to merge, although the deal was blocked by regulators. In addition, it was one of the investors that pushed for the separation of Yahoo! Inc. (NASDAQ:YHOO)’s core business from its equity investments in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo! Japan. Last year, Yahoo! agreed to sell its core assets to Verizon. For these and other activist investments, Starboard was named the top second activist fund of 2016 in The Activist Investing Annual Review 2017, published by Activist Insight and Schulte Roth & Zabel.

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After having initiated a stake in Perrigo Company plc (NYSE:PRGO) during the third quarter, Starboard boosted the position by 61% to 9.51 million shares worth $791.22 million during the fourth quarter. Moreover, earlier this month, the fund filed an amended 13D filing, in which it disclosed ownership of more than 9.64 million shares, which represent 6.7% of the company’s outstanding stock. The activist also announced having entered into an agreement with the company, under the terms of which Perrigo Company plc (NYSE:PRGO) appointed Jeff Smith, Brafley Alford and Jeffrey Kindler to its board of directors. Starboard also has the right two appoint two more independent directors.

Perrigo, a manufacturer of over-the-counter pharmaceuticals, has seen its stock price drop by over 13% since the beginning of the year, mainly due to the 11% hit it took on February 27, when the company reported its preliminary 2016 results and guidance for 2017. The company posted revenue of $5.63 billion for the year, up by 5.6% on the year. Net loss is expected between $28.85 and $29.00 per share due to goodwill and asset impairment charges, while adjusted EPS is between $7.10 and $7.25. For 2017, the company is currently expecting adjusted EPS of $6.30 to $6.65. The company also said that Ernst & Young is evaluating its historical revenue recognition practices related to Tysabri, royalties from which Perrigo Company plc (NYSE:PRGO) recently has agreed to sell. Overall, there were 31 funds from our database which amassed nearly 11% of the company’s outstanding stock at the end of 2016.

Baxter International Inc (NYSE:BAX) is another healthcare company in which Starboard raised its stake last quarter. As of the end of December, the fund owns 2.45 million shares (up by 30% on the quarter) worth $108.68 million. The fund has held shares of Baxter since the second quarter of 2015 and has seen the stock advance by 31%. At the end of 2016, Starboard was one of 48 funds tracked by us bullish on the company, down by two over the quarter.

At the beginning of February, Baxter International Inc (NYSE:BAX) posted fourth-quarter EPS of $0.57 on revenue of $2.65 billion, which beat estimates by $0.05 and $10 million, respectively. In fact, the company managed to post better-than-expected results for the last 10 quarters. In other news, in February 28, Baxter announced a strategic partnership with ScinoPharm Taiwan, under the terms of which the companies will develop and sell five injectable drugs for the treatment of a range of cancers and chemo-induced nausea and vomiting. The products are expected to be launched in 2020.

On the next page, we will discuss three companies in which Starboard initiated stakes during the October-December period.