Thursday, February 23, 2017

Jeff Ubben & Paul Hilal: Future of Shareholder Activism Panel at Reuters Live

At the Reuters Live Newsmaker Event, a panel on The Future of Shareholder Activism featured Jeff Ubben of ValueAct Capital and Paul Hilal of Mantle Ridge and they were later joined also by Zach Oleksiuk of BlackRock and Richard Brand of law firm Cadwalader

Jeff Ubben (ValueAct Capital)

He said "The last fat pitch was financials in summer of 2016.  We're very late cycle."  He's seen some activity that's concerning to him where companies are just doing silly deals or allocating tons of money to stupid things.  He says the markets are loving it, but he's not.  He says he's had to be "Mr. No" in board rooms which is the kind of thing he has to do at tops, whereas at bottoms he needs to tell people to buy.  Ubben's got $3 billion in cash right now (manages $16 billion) and is clearly cautious.

Thinks Morgan Stanley's (MS) earnings will go from $2.50 to $4.50.  They've sold some shares but still own it.  Sounds like he only sold because shares have gone up so far so fast.

"One of the hardest things to do is refresh a board."  "The hedge fund activist is putting us on a very awful path.  These are guys with 1 year money and want 1 year returns.  The hedge fund activist is a big problem."

Thinks activist investing should be its own asset class.  You've got private equity with 10 year lockups, hedge funds mainly with 1 year lockups, so perhaps activist investors could slide in at 4-5 years.

Ubben also noted that he thinks large cap activist plays are 'treacherous' with high PEs and then not a lot of growth.  Argues that so much money flowing into alternatives has inflated things.  "Everything about Trump I think is inflationary."

"It's uncomfortable for directors to talk to shareholders" due to regulations (Reg FD).  "Boards are just ... ugh." Thinks this is a 'young' business (i.e. younger people have the energy to do the legwork) and doesn't think he'll be the portfolio manager of ValueAct in five years.  For more on this fund, we've highlighted recent ValueAct portfolio activity here.

Paul Hilal (Mantle Ridge)

Prior to founding Mantle Ridge, Hilal worked at Bill Ackman's Pershing Square.  Has a 5-year lockup at his fund with over $1 billion with a vehicle designed to hold 1 company.  Purposefully moved away from an annual payment structure and he gets paid at the end of the lockup if he's done his job and created value.

Argues longer lock-up helps when dealing with management as he's not just in for a quick hit.  He's been working with railroad CSX (CSX).  Hilal notes that "(Trump) likes the thought of a manufacturing renaissance here."  If a railroad can be a facilitator then that will be welcome by the administration.  Thinks it's very useful for companies to hear from various types of shareholders: hedge funds, institutional investors, etc. 

Talked about the rules around disclosing activist positions (i.e. 13D filings etc).  Thinks there's a decent balance now.  Seemed to think potentially moving disclosure requirements down to a 1% threshold would be difficult as shares can move against you.

Thinks it's useful for Directors of companies to go on a 'listening tour' to hear what people think about the company first.  It's in the company's interest to attract smart investors to give input. 

Zach Oleksiuk (BlackRock)

"We are skeptical of directors who are focused on a single issue or a single thesis."  Notes there's a lot of different types of activists in terms of style and quality.  Thinks there will be more investor focus on environmental and social issues going forward, especially if the issues impact the business.

Richard Brand (Cadwalader) 

Settlement outcomes should be driven by two things: what's right for the company (shareholder value) and the relative leverage of the parties.  The opinions of large institutional shareholders matters a lot.  Thinks there will be a convergence of private equity style and activist style investing in the future.  Also argued hedge funds could start to buy companies (cites Elliott Management, Carl Icahn).  And then private equity investors could start behaving more like activists. 

JANA Partners Files 13D on Tiffany & Co

Barry Rosenstein's activist hedge fund JANA Partners has filed a 13D with the SEC regarding Tiffany & Co (TIF).  Per the filing, JANA now owns 4.9% of Tifany with over 6 million shares (inclusive of options to purchase 1.39 million shares).

This is a newly disclosed position for JANA.  The filing notes they were buying throughout January and into early February, with the bulk of their buying coming at between $77.19 and $83.15.  They're working together as a group with Francesco Trapani (who owns $16 million worth of stock as well) who they've nominated to the board.

The filing specifically notes they've had discussion with Tiffany about: "the balance sheet, potential opportunities to accelerate top line growth and expand margins, supply chain, working capital, and the composition of the board."

Per Google Finance, Tiffany & Co is "a jeweler and specialty retailer. Through its subsidiaries, the Company designs and manufactures products and operates TIFFANY & CO. retail stores. The Company's segments include Americas, Asia-Pacific, Japan, Europe and Other. The Americas segment includes sale in Company-operated TIFFANY & CO. stores in the United States, Canada and Latin America. The Asia-Pacific segment includes over 80 Company-operated TIFFANY & CO. stores in China, Korea, Hong Kong, Taiwan, Australia, Singapore, Macau, Malaysia and Thailand. The Japan segment includes approximately 60 Company-operated TIFFANY & CO. stores. The retail sales in Europe are transacted in over 40 Company-operated TIFFANY & CO. stores. The Other segment includes retail sales and wholesale distribution; wholesale sales of diamonds, and licensing agreements."

Viking Global Discloses Calithera Bioscience Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of Calithera Bioscience (CALA).  Per the filing, Viking now owns 7.8% of the company with over 1.6 million shares.

This is a newly disclosed equity position for Viking and the filing was made due to activity on February 8th.

You can view the rest of Viking Global's portfolio here.

Per Google Finance, Calithera Bioscience is "a clinical-stage pharmaceutical company. The Company focuses on discovering and developing small molecule drugs directed against tumor and immune cell targets that control key metabolic pathways in the tumor microenvironment. It is engaged in developing agents that take advantage of the metabolic requirements of tumor cells and cancer-fighting immune cells, such as cytotoxic T-cells. Its lead product candidate, CB-839, is a critical enzyme in tumor cells. Its other product candidate, CB-1158, which is an enzyme that depletes the amino acid arginine, a key metabolic nutrient for T-cells. Its lead preclinical program in tumor immunology is directed at developing inhibitors of the enzyme arginase and may provide a therapeutic agent for the target. CB-839 is a selective, reversible and orally bioavailable inhibitor of human glutaminase. Hexokinase is an enzyme in the pathway that allows cancer cells to convert glucose to energy to fuel cancer cell growth."