SPX Corporation (SPW), Esterline Technologies Corporation (ESL): Activist Hedge Fund Relational Investor’s Latest Moves

Ralph Whitworth is a well-known activist investor, who after acquiring a significant stake in the troubled companies jumps on their board. Rather than proxy fights he is more interested in engaging the board and management and resolve incompetencies surrounding their corporate governance. Backed by sound research, he will highlight the troubled spots of a company, but his refined style doesn’t entail arguing about strategy, or business plans. However, he will publicly hold the board and the CEO accountable for poor decisions including corporate compensation, acquisitions or corporate misconduct. Whitworth has now been battling throat cancer, and has taken a leave of absence while his fund continues to unwind some of his holdings, while not initiating any new positions. News about the fund’s dissolution plans also surfaced in November last year. The market value of Relational’s portfolio stood at $2.78 billion at the end of the fourth quarter, as compared to $4.06 billion a quarter earlier. With top 10 holdings constituting 98.97% of the portfolio value, the fund is not very big on diversity. Relational’s top two holdings remain Mondelez International Inc (NASDAQ:MDLZ) and Bunge Ltd (NYSE:BG).

If an investor wholeheartedly believes in the capabilities of money managers like Whitworth, they might follow his picks as he submits filings after acquiring a significant stake in companies. However, generally following the most popular stocks among hedge funds isn’t the most rewarding strategy. The reason being that the real edge that hedge funds have isn’t in picking large-cap stocks, but the small cap companies. We have been sharing these picks since August 2012 in our newsletter, and they have significantly outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 ETF (SPY) by a staggering 76.7 percentage points since August 2012 through March 2015 and returned 132%.

Mondelez International Inc (NASDAQ:MDLZ) is Relational’s largest holding with about 12.47 million shares valued at $452.90 million, comprising of 16.29% of the fund’s portfolio value as of the latest 13F filing. Although the number of hedge funds invested in the company declined to 63 in the fourth quarter from 69 a quarter earlier, the aggregate amount invested increased to $6.75 billion from $6.47 billion. Nelson Peltz’s Trian partners held some 46.30 million shares valued at $1.68 million. Mondelez International Inc (NASDAQ:MDLZ) is trading almost the same level as a year ago.

With 4.95 million shares valued at $449.7 million Bunge Ltd (NYSE:BG) comprised 16.17% of Relational’s portfolio value and was the second largest holding at the end of 2014. Clint Carlson’s Carlson Capital reduced its stake in the agribusiness and food company by 29% to 1.22 million shares valued at $110.67 million during the fourth quarter. Bunge Ltd (NYSE:BG)’s posted lackluster fourth quarter financial results with an EPS of $1.2 missing the estimates by $1.31 and $13.9 billion revenues coming in $2.82 billion lighter than expected. Voaltility in the company’s oilseed businesses removed gains from bumber U.S. corn and soybean crops.

This is the second time that Relational reduced its stake in SPX Corporation (NYSE:SPW) this year. The fund now has ownership of 7.7% of the company’s outstanding common stock. Among over 700 hedge funds that we track, Joel Greenblatt’s Gotham Asset Management had the highest holding of SPX after Whitworth with about 970,300 shares valued at $83.34 million.The engineering solutions company is down about 82% over the last 52 weeks. Although SPX Corporation (NYSE:SPW)’s Earnings per Share (EPS) of $2.36 beat estimates by $0.15, revenues of $1.28 billion came in $70 million lighter than expected.

Henry W. (Jay) Winship was appointed to Esterline Technologies Corporation (NYSE:ESL)‘s board in December 2012 and his recent resignation could be part of Relational’s unwinding process in the absence of Whitworth. Esterline Technologies Corporation (NYSE:ESL) acquired Belgian based Barco’s defense and aerospace business for $190 million in September last year. As for the company’s first quarter financial results, EPS of $0.98 was $0.36 less than the anticipated, and revenues of $446 million also missed the estimated mark by $84 million.

Glenn Fuhrman and John Phelan’s MSD Capital is another significant investor in Esterline Technologies Corporation (NYSE:ESL) with 1.62 million shares valued at $178.18 million.

Disclosure: none

SPX Corporation (SPW), Esterline Technologies Corporation (ESL): Activist Hedge Fund Relational Investor’s Latest Moves

Published on March 17, 2015 at 9:35 am by Usman Rafi in Hedge Funds, News

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