Andrew Wallach and Jason Ader‘s SpringOwl Associates and Jeffrey Bronchick (pictured)‘s Cove Street Capital have succeeded in shaking up the Forestar Group Inc. (NYSE:FOR) Board of Directors, which includes SpringOwl’s President Daniel B. Silvers being appointed to the Board. SpringOwl has ownership of 344,224 shares, a 1.0% stake, while Cove Street owns 2.13 million shares, a 6.1% stake.
SpringOwl Associates is the result of a 2013 merger between two small, activist hedge funds: Cumberland Associates, managed by Wallach, and Ader Investment Management, managed by Ader. Cumberland was founded in 1970, and over its 43 years of existence provided a 14.5% annualized return. Ader meanwhile was a much younger fund, though no less successful. The fund had returned 40% year-to-date at the time of the pair’s merger in 2013, and notably affected a board shakeup at gaming company International Game Technology (NYSE:IGT).
Cove Street Capital on the other hand is a value investment firm in the mold of Warren Buffett. The fund manages a focused portfolio of long positions, shunning the current trends to over-diversify and mimic indices. The fund runs a number of different portfolios with structured strategies, including small cap, all cap, and strategic portfolios. The fund is managed by Bronchick, who graduated from the University of Pennsylvania with a BA in Economics, and was formerly the Chief Investment Officer and a lead principal of Reed Conner & Birdwell, LLC, a Los Angeles based investment manager.
The two funds, part of an investor group which automatically terminated upon the new agreement being reached, collectively own 2.49 million shares, 7.1% of Forestar’s outstanding common stock. Given the termination of the investor group, Springowl’s ownership is once again below the 13D reporting threshold. Despite their vastly different ownership levels, the performance of the company has equal meaning to both funds; in fact the much smaller SpringOwl’s 1.0% stake accounted for 32.66% of the value of their entire $18.67 million equity portfolio as of September 30. Cove Street’s 6.1% stake on the other hand accounted for just 4.47% of that value of that fund’s $642 million portfolio.
The investor group sent an open letter to shareholders of the real estate company on January 6, expressing disappointment in the under-performance of the company and its stock, which had lost 25.57% in 2014, and is down another 9.16% so far in 2015. They blamed the poor performance on a number of factors, including initiatives that were too distant and unfocused to have any great meaning, as well as numerous cases of questionable corporate governance that resulted in a great loss of value to shareholders, including several poor Capital Allocation decisions.
By the end of January, Forestar Group Inc. (NYSE:FOR) began to act under the mounting activist pressure to curb their oil and gas expenses, announcing that they would close their North Texas oil and gas operations office in Fort Worth, in an effort to cut costs, before announcing their agreement with the investor group yesterday. In addition to the appointment of Silvers, Forestar will also appoint David Weinstein to the Board, a former president and CEO of MPG Office Trust Inc. As well, current board members Carl A. Thomason and Michael E. Dougherty will resign and retire from the board respectively; immediately in the former’s case, and in the latter’s, by the May, 2016 shareholder meeting. As part of the agreement, the investor group will vote for all of the board candidates put forth by the company, as well as unspecified proposals that may be put forth by the next shareholder meeting.
“Forestar’s Board of Directors and management team are fully engaged in exploring strategic alternatives to enhance shareholder value, including a thorough review and evaluation of the oil and gas business. We believe the addition of Mr. Silvers and Mr. Weinstein will provide additional perspectives in evaluating our strategic alternatives, and we look forward to working together to maximize long-term value for all shareholders” said Jim DeCosmo, President and Chief Executive Officer of Forestar.
Geoffrey Raynor’s Q Investments and Steve Pei’s Gratia Capital were the two largest shareholders in Forestar Group Inc. (NYSE:FOR) among institutional investors we track, as of September 30. Q Investments held 555,122 shares, while Gratia Capital owned 509,131.
Disclosure: None
