There is a new top dog in the world of activist hedge funds, at least as measured by the number of companies being targeted.
Jeff Smith’s Starboard Value wrestled the crown from Elliott to become the most prolific activist investor in the first quarter of 2019, with new campaigns for a strategic rethink at companies as diverse as drugmaker Bristol-Myers Squibb, ecommerce business eBay and pizza chain Papa John’s.
Starboard’s seven new campaigns eclipsed the four launched by Paul Singer’s Elliott Management, which was the most prolific for the previous seven consecutive quarters, and for 10 of the 11 previous quarters, according to data compiled by the boutique investment bank Lazard.
Elliott still manages significantly more money — it has assets under management of more than $35bn, compared to Starboard’s $5.5bn, according to regulatory filings — but Starboard has been bolstering its reputation as a formidable opponent for companies it says are not being run to the maximum value for shareholders.
Just this week, it was revealed that Mr Smith’s fund had added another campaign, when the healthcare and information technology company Cerner announced it was giving Starboard four new board seats. The fund’s stake had not been previously disclosed.
Where many shareholder activists prefer to lobby for corporate changes like mergers, spin-offs and management changes from outside of the boardroom, Mr Smith’s tactic has been to pursue board seats and try to affect change from within, often nominating multiple directors or seeking to oust entire boards.
He has won more board seats than any other activist over the past five years, according to Lazard’s tally.
Mr Smith takes many of those seats himself. He currently is the chairman of the boards of Papa John’s and Advance Auto Parts, and is on the board of Perrigo.
“Over the last two years, they’ve adopted the tactic of: let’s nominate a long slate,” said Jim Rossman, the head of the shareholder advisory practice at Lazard. “It’s a signal that if Starboard gets involved, they’re going to want some level of control.”
Starboard has been emboldened by its sweeping victory in 2014 at Darden Restaurants, the owner of Olive Garden, after it succeeded in ousting the entire 12-person board and replacing it with its own slate of directors through a proxy campaign that won support from shareholders.
The 46-year-old Mr Smith started his career in the M&A department at Société Générale before working at his father’s company, Fresh Juice Co, until it was sold. He formed what would become Starboard in 2002 while at the investment manager Ramius alongside co-founder Mark Mitchell, before the pair spun their activist strategy out into a standalone fund in 2011. Mr Mitchell retired from Starboard earlier this year.
Starboard is named after the nautical term meaning the right side of the ship when one is facing forward.
In the first quarter this year, the fund came out against Bristol-Myers’s planned takeover of Celgene, saying the deal was not right for the company’s shareholders and that Bristol-Myers should pursue a different way forward.
Also this year it secured board seats at Papa John’s in return for a $200m investment, a deal with lessened the control of founder John Schnatter, who caused a scandal by using racially offensive language.
At eBay, it settled for a board seat, but at Dollar Tree, the discount retailer where it was demanding it raise prices from $1, Starboard withdrew its nominees. It said earlier this month that it had held “constructive conversations with management” at Dollar Tree, and that the retailer’s turnround plan “is finally gaining traction”.
“Just the velocity at which Starboard can arrive on the scene, assemble [a slate of director candidates] and deliver a white paper” setting out its proposals to boost shareholder value, said Mr Rossman. “That’s their key strength as an activist: if they launch a proxy fight, it’s credible”, because of their “network of directors.”
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