Jeff Smith Long Marvell Technology Group: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Jeff Smith of Starboard Value who pitched a long of Marvell Technology Group (MRVL).  They added to the position recently and filed.


Jeff Smith's Capitalize For Kids Presentation: Long Marvell Technology Group

•    Semi co. Acquired Cavium in July 2018
•    Half their biz in storage, half in networking
•    Both are growing, both are well positioned
•    #1, or #2 in almost every key market
•    What SB has done with Marvell
•    114% underperformance vs peers over 5 years pre-SB
•    Options backdating, 8 CFOs 8 years. Accounting investigation, auditor resignation
•    Loved the business was great, Marvell’s customers wanted them to succeed
•    Entire board and management changed since 2016. Just a settlement, not a proxy. More than half the board replaced via settlement, rest turned over after
•    New management and CFO
•    Revenue shrunk, now its growing
•    Gross margins shrunk, now record highs
•    Op margins shrunk dramatically, now op margins at record highs
•    Stock has 2x’d since first 13D filing
•    Only partially closed underinvestment gap, still below index returns, gap is widening in underperformance
•    Why now? The acquisition positions it well for 5G and internet megatrend.
•    Now has complete solution in enterprise Cloud data centre and service provider. Now Marvell can compete with Broadcom, who was the only complete solution. Customers want them to compete and be strong against Broadcom
•    Trades below unaffected deal price

•    What’s changed?
o    Concerns around Cavium’s growth trajectory and inventory destocking
o    Fear related to Marvell’s end markets
o    Macro concerns, tariffs etc
o    10%+ FCF yield

•    Inventory sell down and 4G lag before 5G buildup has temporarily impacted growth rate
•    Cavium taking share in these end markets
•    Went from consumer products biz, now infrastructure end markets (data centres, etc)
•    Storage concern - Hard disk drives secular declines.
o    Great profitable biz in slow declineo    Hard drive for notebooks only 7% of Marvell’s revs
o    Storage biz as a whole now focused more datacentres and Edge / Other internet
o    Desktop / notebook is only 20% today
o    Data centre still a share gainer

•    Networking biz - all are share gainers in high growth markets
o    Wi-fi
o    ARM
o    EDGE
o    Ethernet
o    Data centre
o    5G

•    Not included in LT Financial Model
o    Not included 5G, Revenue synergies on deal, or ARM server processors. So not accounting for the revenue growth for the above
o    However, they are accounting for all the costs

•    Thinks management is credible, killed their guidance. Implying that they sandbag guidance very hard.
•    Goes through earnings guidance and earnings and were all big beats
•    R&D is higher than their peers. Still thinks it is a solid investment in product that will payoff
•    Put managers in place, thinks they are making very responsible investments, that should allow them to continue to beat earnings

•    Either get that revenue, or those R&D costs will come out.
o    —> earnings $2+/shr. 8x earnings today
o    Trades dramatically below their peers on most metrics.
•    Company in the market buying stock, $1b+ buyback program
•    Still excited about this idea


Be sure to check out the rest of the presentations from Capitalize For Kids 2018. 

Starboard Value's Letter To Newell Brands Shareholders

Jeff Smith's activist investment firm Starboard Value has taken a stake in Newell Brands (NWL).  They've teamed up with former Jarden management players in order to force change at the company.

We also highlighted last week that Carl Icahn owns Newell shares as well, though it doesn't look like they've teamed up at this point.

Starboard is seeking to replace the board of directors and today released a letter to Newell shareholders.  They write,

"While these have been  extremely challenging times for Newell, we believe that the recent poor financial  and  stock  price  performance  has  created  a unique  opportunity  to  invest  in  an  iconic company and embark on a multi-year operational turnaround that can deliver outstanding returns to  shareholders."

Embedded below is Starboard Value's letter to Newell Brands shareholders:



You can download a .pdf copy here. 

Starboard Value Takes Stake in Cars.com

Jeff Smith's activist firm Starboard Value has filed a 13D with the SEC regarding shares of Cars.com (CARS).  Per the filing, Starboard now owns 9.9% of the company with 7.1 million shares.

This is a new position for the firm and the filing was made due to activity in late November and early December.  They acquired shares primarily between $24 and $27 from November 22nd through December 18th.

The filing notes that Starboard feels that shares are undervalued and represent an attractive investment.

Per Yahoo Finance, Cars.com "operates as an online research destination for car shoppers. It sells online subscription advertising products to car dealerships by its own direct sales force, as well as through its affiliate sales channel. The company also sells display advertising to national advertisers. In addition, it offers online automotive marketplace service that connects buyers and sellers in Cars.com, Auto.com, DealerRater.com, NewCars.com, and PickupTrucks.com Websites. The company’s Website hosts approximately 4.7 million vehicle listings at any given time and serves approximately 20,000 franchise and independent car dealers in 50 states. The company was founded in 1998 and is headquartered in Chicago, Illinois. Cars.com Inc. is a subsidiary of TEGNA Inc."

Jeff Smith Long Stewart Information: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Jeff Smith of activist firm Starboard Value who pitched long Stewart Information (STC).


Jeff Smith's Presentation at Capitalize For Kids Conference 2016

•    LONG Stewart Information Services (STC).  Leading title insurance company, providing title insurance of home owners for both residential (90% of business) and commercial (10% of business)

•    $1 billion market cap, trades at 15x earnings

•    Title insurance is generally required by mortgage underwriter for buying a house and an refi. Needed for buyers’ safety to make sure no outstanding loans on the company.

•    Different than typical insurance business. Most traditional insurance business insure customers of losses for something they are trying to predict. Title insurance does not predict but essentially performs due diligence and therefore less risky, lower losses.

•    Very strong network build over many decades, with 12% market share. STC is one of the four clear leaders in this market.

•    Approximately 50% of sales are sold through direct (utilize own employees, higher margin business) and the remaining is agency business.

•    Opportunity for Starboard is: STC is currently underearning, pre-tax margins are 5% vs. industry peers of 11%. Believes margins can reach its peers based on additional cost cutting initiatives.

•    Since GFC, believes mortgage industry is less susceptible to fraud. Loss rates for title insurers has come down since 2009.

•    Balance Sheet is very strong (strongest relative to peers) and can return capital to shareholders •    Believes the company trades at a discount to peers due to years of underperformance, historical governance issues and no sell-side attention.

•    Recently dual class structure has been removed. •    Currently, Starboard has influenced the board and is adding two members (already made one change by placing the Steward CEO on the board).


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jeff Smith from Starboard Value.  The activist investor revealed a new long of Advance Auto Parts (AAP).

Jeff Smith's Capitalize For Kids Presentation

-    Long Advance Auto Parts (AAP)
-    They look for value, plan, path
-    See stock going from $171.40 to >$350
-    Specialty retailer of aftermarket automotive parts
-    Have two divisions retail stores to buy parts and commercial distribution business for garages to buy parts
-    They are seeing consolidation in the industry
-    Cars are getting older and more complicated, seeing consumers taking cars to auto shops to fix their cars versus self-fix due to this.
-    SSS growth in all markets over last few years, yet AAP has underperformed by 295% vs peers
-    Peers have more retail which is known as higher margin business but this may be misunderstood
-    AAP does have a margin problem but not a revenue problem
-    There is a 800bp gap between margins in EBITDA to competitors (or as he put it best in class margins)
-    It is trading at 10x, 6.3x proforma, peers at 12x
-    Thesis: 600-740bp margin improvement, fix NWC. Grow SKU count to provide better service and get first calls from customers. Increase leverage from 1.1x to 2.5x. Consolidation and returning cash for further returns.

We already posted up Smith's slideshow presentation on AAP as well.


Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.

Starboard Value's Presentation on Advance Auto Parts

Jeff Smith's activist investment firm Starboard Value today released a presentation on their newest holding, Advance Auto Parts (AAP).  They now own 3.7% of the company.

AAP currently trades around $190 and Starboard thinks shares could be worth over $350 with some of their changes implemented.  They like the favorable industry dynamics and think that AAP has underperformed peers long-term. 

Starboard seeks to increase shareholder value via four ways:

- Improve margins through operational efficencies
- Unlock value for Worldpac (underappreciated asset)
- Return capital to shareholders (dividend and/or buyback)
- Pursue industry consolidation

Embedded below is Starboard's presentation on AAP:



You can download a .pdf copy here.

For more from this investor, head to Jeff Smith's recent interview on activist investing.

Starboard Value's Jeff Smith on Activism: Wall Street Week Interview

Starboard Value's Jeffrey Smith recently appeared on Anthony Scaramucci's rebooted version of Wall Street Week.  In his appearance, Smith talks about his career background, how he got into investing, and of course activism.

On his approach, Smith says, 

"We look at businesses as to how they can be run better for the long-term.  We're looking at how companies can earn more money, be more profitable for the long-term. We're looking to make changes to those companies so they can run better.  But we're also willing to ask the shareholders what they think, to provide shareholders with a choice."

We also recently highlighted that Starboard took a stake in Brink's.  He said if you look at their margins, they're half of their main competitor.  So the thesis here is pretty simple as Smith thinks they can improve their margins and work with the company.

Embedded below is Jeffrey Smith's interview on Wall Street Week:



If you missed it, be sure to check out other Wall Street Week episodes like their interview with Carl Icahn, their interview with Jeff Gundlach and with Barry Rosenstein as well.

Starboard Value Discloses Brink's Stake in 13D Filing

Per a 13D filed with the SEC, Jeffrey Smith's activist fund Starboard Value has disclosed an 8.2% ownership stake in Brink's (BCO) with 3.97 million shares.

This is a newly revealed position as they did not own any shares at the end of 2014.  The filing shows Starboard was out buying BCO shares throughout March and April at prices largely between $26 and $29.

The 13D filing contains the standard activist boilerplate stating that Starboard thinks shares are an attractive investment opportunity and might engagement management in the future.

Per Google Finance, Brinks is "a provider of secure logistics and security solutions services ATM replenishment and maintenance, secure international transportation of valuables and cash management services, to financial institutions, retailers, government agencies including central banks, mints, jewelers and other commercial operations around the world."

Jeff Smith Long Yahoo & MeadWestvaco at Capitalize For Kids Sohn Canada Conference

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Jeff Smith of Starboard Value who talked about various investments including Darden, Yahoo, and MeadWestvaco.


Jeff Smith's Sohn Canada Presentation

Spoke about being in the news with the recent Darden Restaurants (DRI) battle. Mentioned they did not want management to sell Red Lobster, and they did.

Next talked about about Yahoo (YHOO). Many shareholders called him, as they are frustrated with lots of clear unlocked value. With a ~$40 B market cap, Alibaba stake is worth $35B, Yahoo Japan stake worth $7.5B, cash on hand at $7.5B and finally the core business of $5.5B. Full value of $62B, much higher than the current value. Opportunity exists given that they will need to pay taxes to exit Alibaba stake. Management is working hard to find a tax structure that is efficient. Mentioned they are currently in a black-out period and will have more details once this period ends. Price target $63 within 12 months (50% upside).

Next, pitched LONG MeadWestvaco Corp (MWV). which is a consolidated packaging company. They are looking to spin off the Specialty Chemical business and the Real Estate piece, both non-core businesses. Plans to reduce overhead and explore alternatives to unlock value of pension assets

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

Starboard Value's Presentation on Transforming Darden Restaurants

Jeff Smith's activist firm Starboard Value is out with a presentation on their position in Darden Restaurants (DRI).  They're pushing for change here and has put together a massive 293 slide deck illustrating the company's margin improvement opportunity, the need for a turnaround in its Olive Garden brand, among other things.

Embedded below is Starboard Value's presentation "Transforming Darden Restaurants":



You can download a .pdf copy here.

For more on Starboard, check out Jeff Smith's presentation at the recent Value Investing Congress as well.

Jeff Smith's Value Investing Congress Presentation: 4 Case Studies

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Jeff Smith of Starboard Value who presented four case studies.


Jeff Smith's Value Investing Congress Presentation

Starboard Value:  80% "success" rate across its history; research shows 26.4% average (median?) returns vs. 9.7% market from when 13-D is filed.  Has placed over 100 people on various boards over 10 years.  18-24 month hold

Selection criteria to get involved:
(1) Plan to unlock value
(2) Clear path to execute (either cooperative management or ability win proxy)
(3) Company is undervalued on absolute basis 


Case study: Tessera 

Good IP licensing business for semi-conductors, good margin, some reinvestment in R&D needed
Tried licensing cell phone camera focus IP but failed bc the buyers did not want to buy without seeing it work in real life
So they build a test case but that wasn't enough
So they double-down and try to find someone to mass-produce their IP, and fail
So they double-down again, and bought a facility for $500 mm and started losing $150 mm per year 

Starboard comes with a plan to refocus the company, dump the camera business and do an overall cost reduction

Replaced the majority of the board, new CEO, sold non-core assets, reduced headcount

Interestingly, the board chairman who led the defense stayed on, and is now friendly with Starboard and can serve on other boards for them in campaigns 


Case study: Office Depot (ODP) 

Second largest office supply company; declining sales, growing overhead, lowest margins in the industry

Starboard plan: cut expenses, reduce SKUs, rationalize distribution, sell Mexico JV, change customer mix (biz vs. retail), merge with Office Max

ODP so far: new superstar CEO, new CFO, merger with OMX, sold JV, 3 new board members.


Case study: Darden 

(On-going situation which appears to have limited the details he put out: ie he did not discuss Red Lobster sale in his deck)

World's largest full service restaurant. Also a big real estate owner unlike it's peers which is an inefficient use of capital. Company runs several brands, two legacy Olive Garden and Longhorn, and smaller growth names. 

Opportunity: real estate value, operational underperformance (even worse when adjusted for non-payment of rent)

Current plan: running a board slate, implement performance plan, separate mature vs. newer concepts, explore franchising 


Case study: MWV 

Packaging conglomerate (various uses); non-core specialty chemicals and real estate businesses; run by the same family for many years (but with low current ownership %)

Very weak operating performance: both gross margins and SG&A spend are substantially worse vs. industry comps

Starboard plan: sell/spin non-core assets, reduce overhead, increase margins to comp, use of pension overfunded status in a merger  


Q&A: Good board memebers: independed, successful people who don't accept mediocrity, secure in who they are, don't "need" the board seat for income, true representatives of the shareholders, "statesmen", be willing to dissent, be willing to criticize CEO based on own industry experience

Q&A: Wilcox update: nothing to share  QnA: WPP update: has been a struggle, replaced CEO

Q&A: MWV transaction leakage: yes, a lot of tax planning will be involved; the overfunding can be used to merge with an underfunded industry competitor and receive some of the value there; reverse morris trusts or other structures in play


Be sure to check out the rest of the Value Investing Congress presentations here.

Starboard Value Goes Activist on Darden Restaurants (DRI) Too

Another activist has joined the Darden Restaurants (DRI) fight.  Jeffrey Smith's Starboard Value LP has disclosed a 5.55% stake in DRI with 7,250,000 shares via an activist 13D filing.

Last week, we highlighted Barington Capital's presentation on Darden Restaurants (DRI) where they called for the company to split up.  The company responded by announcing plans to spin off its Red Lobster chain. Now another activist is on the scene.

This is a brand new investment for Starboard.  They've engaged management in discussions and feel the announced plan doesn't maximize shareholder value.  Smith's 13D says,

"Specifically, Starboard believes there is a significant opportunity to dramatically improve the operating performance at the Issuer, as well as opportunities to realize substantial value from the Issuer’s real estate holdings and to explore other strategic options available to the Issuer to maximize shareholder value, including alternative business sale or separation transactions."

The company operates restaurants such as Olive Garden, Red Lobster, LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52, and Eddie V's Prime Seafood.

For more on Starboard, see Jeff Smith's presentation on Wausau Paper.

Jeff Smith's Presentation on Wausau Paper: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Jeffrey Smith of Starboard Value.  He's an activist investor and talked about Wausau Paper (WPP).


Jeffrey Smith's Value Investing Congress Presentation

Wausau Paper (WPP)

Maker of toilet paper and paper towels.  He says everyone needs toilet paper.  Significant opportunity to dramatically increase cash flow through better execution.  Wants the company to change its name and return cash to shareholders.

He likes that it generates strong cashflow and almost acts like an oligopoly in local areas.  They focus on office toilet paper & towels.  Starboard owns a 15% position and wants the company to cost-cut and grow in order to then do a big buyback and dividend.

He said he can't talk Smithfield.  Starboard is seeking to vote down the buyout of the pork company.


Be sure to check out the other presentations from the New York VIC here.