Ira Sohn Investment Conference is one of the most awaited events that aside from supporting an important cause, ending childhood cancer, also has the ability to move the markets since it features some of the well-known investors, who present their long and short ideas. This year, the conference will take place on May 4 and will feature several very important names (you can see the full list here). We have decided to take a look at the speakers at the conference and some of their stock picks to give readers a better idea of what to expect at the event. In a previous article, we have looked at billionaire David Einhorn’s long and short bets (read here) that he might be discussing during his presentation. In this article, let’s take a look at another activist investor, Jeff Smith of Starboard Value.
Over the years, Mr. Smith successfully conducted several important campaigns and managed to improve the shareholder value at several companies, such as Darden Restaurants, Inc. (NYSE:DRI), where he managed to replace the entire board of directors and to conduct a monetization of the company’s real estate assets through their spin-off into Four Corners Property Trust Inc (NYSE:FCPT) REIT. Overall, more than 80% of Smith’s campaigns ended successfully and Starboard posted an annualized return of 16% since 2002.
In the last couple of months, Starboard made headlines in relation to two of Smith’s recent targets, which he might be discussing at the Ira Sohn conference: Depomed Inc (NASDAQ:DEPO) and Yahoo! Inc. (NASDAQ:YHOO). Yahoo has been under attack from Mr. Smith since Alibaba’s IPO in 2014. In September, Starboard sent a letter to Yahoo!’s CEO Marissa Mayer and urged her to find a tax-efficient way to unlock the value from the company’s stakes in Alibaba and Yahoo Japan, to reduce the acquisitions and even to merge with AOL (read article). As the company was trying to improve its situation, particularly in its struggling core business, Starboard did not make any public statements. However, since Yahoo! Inc. (NASDAQ:YHOO) failed to spin-off its investments in Alibaba and Yahoo Japan due to high tax liabilities, and its core business continued to disappoint, Starboard stepped up its involvement and in January delivered another letter, in which it expressed its disappointment with the Board and the current management. At the end of March, Starboard launched a proxy fight to remove the entire board, including CEO Marissa Mayer and said it would nominate nine new candidates. Starboard owns around 1.7% of Yahoo! Inc. (NASDAQ:YHOO) and it was the fund’s third-largest 13F holding. Both parties can still come to an agreement before the stockholder meeting in June, although it is unlikely, because their talks in March failed and led to the proxy fight. There is a high chance that Starboard will be supported by many shareholders, since the activist fund is pushing for a sale of the core business and will be interested to maximize the shareholder value of the transaction.
Depomed Inc (NASDAQ:DEPO) is one of Starboard’s new positions and the fund has quickly amassed a 9.8% stake. Since Depomed is incorporated in California, the laws allow a shareholder with a 10% stake to call a special meeting to replace directors. Depomed had said earlier that it would propose to move its incorporation to Delaware, where the threshold stands at 25%. In a recent letter sent to Depomed’s CEO and board of directors, Starboard accused the board of trying to “entrench themselves” and of refusing to negotiate with Horizon Pharma a potential acquisition of Depomed. As Starboard has taken these governance issues public, it is likely that it will also be supported by most shareholders. Aside from Starboard, other shareholders of Depomed Inc (NASDAQ:DEPO) include Richard Mashaal’s Rima Senvest Management and Kevin Kotler’s Broadfin Capital.
Mr. Smith might also talk about the monetization of real estate assets, giving as an example Macy’s, Inc. (NYSE:M), in which Starboard owns a $116 million position. Starboard said in a January presentation that Macy’s could increase its shareholder value by taking advantage of its real estate, which is worth around $21 billion and is not fully appreciated by the market. Starboard suggested that Macy’s, Inc. (NYSE:M) could create several separate Joint Ventures to “attract the appropriate partners who will pay the most for different types of assets”. This would allow Macy’s stock to grow to $70 per share. As stated earlier, Darden Restaurants, Inc. (NYSE:DRI), where Starboard managed to replace the entire board, conducted a spin-off of its real estate assets into a REIT last year. Billionaire David Einhorn’s Greenlight Capital agrees with this position, as it stated in an investor letter and said that there is a possibility that Macy’s, Inc. (NYSE:M) would be acquired and taken private to unlock the value hidden in its real estate assets.
At the beginning of 2016, Starboard’s largest position was represented by Darden Restaurants, Inc. (NYSE:DRI), which amassed over 19% of its equity portfolio, followed by Advance Auto Parts, Inc. (NYSE:AAP) and Yahoo! Inc. (NASDAQ:YHOO). Last year, Starboard went activist on Advanced Auto Parts, and put pressure on the company to improve its profits. The investor reached an agreement with the company, following which Advance Auto Parts, Inc. (NYSE:AAP) appointed Mr. Smith to its board and offered Starboard the possibility to nominate two independent directors. Following the agreement, the seller of auto parts had announced the retirement of its CEO and earlier this month it said that former PepsiCo, Inc. (NYSE:PEP)’s head of Frito-Lay North America Tom Greco would become the new CEO. Starboard held 1.71 million shares of Advance Auto Parts, Inc. (NYSE:AAP) at the end of 2015.
Disclosure: none
