Jeffrey Smith’s Starboard Value disclosed a new activist position in MedAssets Inc. (NASDAQ:MDAS) in a 13D filing with the Securities and Exchange Commission. Subsequently, Starboard currently owns 5.23 million shares in the healthcare performance improvement company, which represent 8.7% of its outstanding common stock. The hedge fund also sent a letter to the Chairman, CEO, and Board of Directors of MedAssets indicating that the shares of the company are deeply undervalued considering the quality of its assets and the earnings power of MedAssets’ core business.
Starboard Value is an activist hedge fund focused on small-cap companies co-established by Jeffrey Smith in 2002. The New York-based hedge fund primarily invests in underperforming companies and attempts to unlock shareholder value by analyzing and implementing alternative strategies. Starboard Value has added or replaced roughly 115 corporate directors on more than 40 corporate boards since its inception in 2002. The hedge fund has an impressive track record thus far, delivering an annualized return of 22% over the same period. Moreover, Starboard Value’s average return on a 13D filing reaches 28.9%, which provides evidence on why it makes sense to track hedge funds’ activities. Even more to that, when Starboard Value managed to receive a board seat at the companies it has invested in, the fund’s average 13D return reached an even higher figure of 34.3%. According to its most recent 13F filing, Starboard Value manages a relatively concentrated public equity portfolio with a value of $4.81 billion, with the top ten of the fund’s holdings accounting for 84.70% of the value.
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Jeffrey Smith’s Starboard Value is calling on MedAssets to overhaul its operations and its board. The activist hedge fund has also pinpointed a clearly defined plan to create shareholder value. Some of the steps that should be undertaken by the healthcare company in order to create value include the reduction of operating expenses, improvement of capital allocation, improvement of the company’s corporate governance and examination of all available strategic alternatives. Starboard Value did not only outline the plan for unlocking shareholder value, but it also asked the healthcare performance improvement company to give shareholders greater control, such as the ability to call for special meetings and act by written consent.
Usually, activist shareholders can use a consent solicitation to remove all of the members of a company’s board of directors whenever they deem it beneficial to do that, which is a powerful tool Starboard Value could use in order to unlock shareholder value at a higher pace. The letter also suggested that if MedAssets pursues the plan of action outlined by Starboard Value, the healthcare technology company could reach a share price of $37-$46 by the end of 2016. Consequently, this yields an upside potential for MedAssets of at least 56%, which theoretically turns this stock into a great buying opportunity.
MedAssets Inc. (NASDAQ:MDAS) is an American healthcare performance improvement company that is assisting healthcare providers in making informed changes to drive total cost reduction, financial optimization, clinical delivery alignment and efficiency. The company’s solutions, industry experts and data-driven methodologies are the core of MedAssets’s business, which is believed to be at the center of improving the quality and effectiveness of the healthcare industry. Although the shares of MedAssets have gained over 19% since the beginning of the current year, Starboard Value believes that the stock is deeply undervalued. Within our database, Claus Moller’s P2 Capital Partners is among the largest investors in MedAssets Inc. (NASDAQ:MDAS) with an ownership stake of 2.84 million shares.
Let’s now take a brief look at the company’s recent financial results, which surely explain why the company’s stock surged on July 29. MedAssets has posted better-than-expected financial results for the second quarter of the current year that ended June 30, 2015. The healthcare-focused company posted a net revenue of $190.4 million for the second quarter of this year, up 8.6% from the $175.4 million figure reported in the same quarter a year ago. At the same time, the net income of the company for the quarter came to $6.3 million or $0.10 per share, compared to a net income of $6.6 million or $0.11 per share reported a year ago. It’s also worth mentioning that MedAssets raised the midpoints of its full-year consolidated financial guidance for 2015, expecting a total net revenue figure in the range of $756-768 million, which would yield a year-over-year increase of at least 5%.
Considering the fact that the reputable hedge fund Starboard Value initiated an activist position in MedAssets and that the upside potential is believed to be at least 56% by the end of 2016, the stock might actually represent a great buying opportunity now. Starboard has a great record of successful activist campaigns, such as the one at Darden Restaurants, Inc. (NYSE:DRI), where the investor managed to replace the entire board of directors with its own slate of candidates.
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