Christopher Shackelton and Adam Gray’s Coliseum Capital disclosed yesterday an increase in its activist stake in The Providence Service Corporation (NASDAQ:PRSC). According to an amended Schedule 13D form, the fund boosted its exposure from 2.32 million shares of Common Stock, to 2.59 million shares. This position accounts for roughly 15.1% of the company’s outstanding stock. In addition, the firm presented a Form 4 filing, declaring the purchase of 150,000 shares of Series A Preferred Stock, convertible into 376,126 shares of Common Stock at a conversion price of $39.88 per share.
About a month ago, Coliseum Capital disclosed ownership of stock options for 200,000 shares of The Providence Service Corporation (NASDAQ:PRSC), which were awarded to Christopher Shackelton in compensation for his service as a member of the board of directors.
Coliseum Capital is a Stamford, Connecticut-based activist hedge fund founded by Christopher Shackelton and Adam Gray in 2005. Its current equity portfolio is worth almost $300 million, and is mainly focused on healthcare stocks, which comprise almost half of its value. Christopher Shackelton graduated from Yale, and, before Coliseum, he worked as an analyst at Meridee A. Moore’s Watershed Asset Management, between 2003 and 2005. Adam Gray is a restaurateur-turned-investor.
The Providence Service Corporation (NASDAQ:PRSC) is a $603.43 million market cap provider and manager of government-sponsored social services and non-emergency transportation services. On October 23, the company completed the acquisition of CCHN Group Holdings, Inc. (“Matrix Medical Network” or “Matrix”), an Arizona-based provider of in-home health assessment and care management services.
The Providence Service Corporation (NASDAQ:PRSC) paid an aggregate price of $400 million for “Matrix.” This included $360 million in cash and 946,722 shares of Providence’s Common Stock, worth $40 million as of close of trading on September 17, 2014 (the day before the agreement was signed). The cash came from a new $250 million term loan tranche, a $65.5 million short term note from Coliseum Capital*, as well as from the company and borrowings under Providence’s existing $240 million revolving credit facility.
In other news, the company will report financial results for its third quarter on November 5, after the market closes.
I should highlight that Coliseum Capital is the largest institutional shareholder (amongst those we track) in The Providence Service Corporation (NASDAQ:PRSC). Other major funds betting on this company are Jim Simons’ Renaissance Technologies, with 939,495 shares, up 13% over the second quarter of 2014, and Israel Englander’s Millennium Management, which started a position over the same period, with 32,716 shares.
The Providence Service Corporation (NASDAQ:PRSC) is Coliseum Capital’s largest equity position, and the stock is already up more than 62% year-to-date. So, is it too late to jump on to this wagon or is the stock’s 29x P/E valuation still attractive?
Also recently, the fund augmented its exposure to Advanced Emissions Solutions, Inc. (NASDAQ:ADES). It now owns 2.09 million shares; an activist stake that represents 9.6% of the company’s common stock.
* The Note’s maturity date is September 30, 2018. It accrues interest at a rate of 14.0% per annum, subject to additional penalty interest up to an aggregate of 18.5% per annum. “Interest from the issuance date to, but excluding, the 120th day after the issuance date, was paid in cash in the amount of $3,014,795 on the issuance of the Note (…) Within 120 days of October 23, 2014, the closing date of the Matrix Acquisition, the Issuer plans to complete a registered Rights Offering, by issuing all of the Issuer’s existing holders of Common Stock non-transferrable subscription rights to purchase their pro rata share of $65.5 million of Series A Preferred Stock at a price that is expected to be equal to $100.00 per share of Series A Preferred Stock” (SEC).
Disclosure: Javier Hasse holds no positions in any stocks or funds mentioned
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