Twenty-First Century Fox, Jeffrey Ubben Each Get What They Want In Deal

Jeffrey Ubben of ValueAct Capital has landed a board seat at the table of one of his biggest investments, Twenty-First Century Fox Inc (NASDAQ:FOX). The deal will see Fox’s Board of Directors expand from 12 to 13 members to include Ubben, giving the esteemed hedge fund manager another notch in his activist belt. Ubben’s ValueAct holds over 47.32 million Class B voting shares of Twenty-First Century Fox, a 5.9% chunk of the media conglomerate’s outstanding voting shares. The current position is up from 44.51 million Class B shares held on June 30.

Ubben has previously landed board seats for himself or other members of his firm at large-cap companies like Microsoft Corporation (NASDAQ:MSFT), Adobe Systems Incorporated (NASDAQ:ADBE), and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which have traditionally been difficult companies for activists to breach. It’s Ubben’s less confrontational, more constructive form of activism that has won him repute and allowed him into the inner sanctum of such companies. Whereas many activists are only interested in increasing shareholder value as quickly as possible, sometimes to the long-term detriment of the company, Ubben’s focus is on making the company strong so that better returns come naturally over time and everyone wins. While Ubben isn’t a stranger to some of the tactics used by other activists, such as selling underperforming assets or even pushing for the removal of a CEO (Steve Ballmer is rumored to have stepped down from leading Microsoft due to pressure from Ubben), he is far more willing to work with management teams towards common goals rather than damage the company with attacks in the press or expensive proxy fights.

Following activist funds like ValueAct Capital is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Starboard can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 36 months since our small-cap strategy was launched it has returned 118% and beaten the S&P 500 ETF (SPY) by more than 60 percentage points (read more details).

The deal between Twenty-First Century Fox Inc (NASDAQ:FOX), led by Rupert Murdoch, and Ubben is a carefully crafted one that allows Ubben a seat on the board in exchange for several concessions on his part, which will prevent him from going into full activist mode on the company (though as said, that really isn’t his style). For one, Ubben must maintain an ownership position of at least 5% in the company or forfeit his board seat. On the other hand, Ubben has also agreed not to raise his stake above 7%, or to sell any of his stake to another investor whose own stake would then be boosted above 5%. Ubben is also unable to solicit proxies against Twenty-First Century Fox. The nomination agreement is similar to the standstill agreement Ubben forged with Adobe in 2012, which led to Kelly Barlow, a Partner at ValueAct, being added to Adobe’s board.

With said stipulations in place, it’s certainly a win for Twenty-First Century Fox Inc (NASDAQ:FOX) to add Ubben to its board, given his impressive track record of helping to steer companies towards better performance, including the aforementioned Adobe and Microsoft. There appears to be nothing but goodwill between the two sides, with Murdoch and Ubben offering praise for each other and the relationship they’ve developed, while Fox’s Lead Independent Director Rod Ellington added that Ubben has a “clear alignment with the rest of the directors on our long-term strategy.”

Ubben’s holding of Fox’s Class B shares is the largest of any of the investors in our database, though value investor Donald Yacktman’s Yacktman Asset Management holds a larger combined position across Fox’s Class A and Class B shares, owning 38.18 million of the former and 28.31 million of the latter. Boykin Curry’s Eagle Capital Management also holds large positions in both classes of shares, holding 28.20 million Class B shares and 8.63 million Class A shares. All told, investors in our database held $9.56 billion worth of Fox shares as of June 30.

Disclosure: None