Bill Ackman’s Bite of Chipotle Is Part of a Larger Trend
" Fortune (09/23/16) Kell, John"
Shareholders at Buffalo Wild Wings (BWLD) and Chipotle Mexican Grill Inc. (CMG) must decide whether they want to embrace engagement by Marcato Capital Management and Bill Ackman's Pershing Square Capital, respectively. At Buffalo Wild Wings, same-store sales are falling after years of consistent growth; Marcato is advocating a change in management and a keener focus on the core brand. At Chipotle, its “Food with Integrity” image became a liability after a prolonged E. Coli crisis, and revenue has fallen 20% to $1.83 billion for this year. Pershing Square hasn’t disclosed its plan for change. However, in the past activists have successfully engaged restaurant chains. Still, observers say activism should be viewed on a case-by-case basis—not judged by industry. “Activists don’t do anything but offer shareholders a choice,” says Ken Squire, founder of 13D Monitor. Squire says activists can help both Buffalo Wild Wings and Chipotle, but he notes that both situations are “totally different.”
Activist Investors Double Chance of CEO Exits, Study Shows
" Bloomberg (09/21/16) Basak, Sonali; Jinks, Beth"
Activist hedge funds settled for, or won, board seats in 46% of the more than 300 contests monitored from 2011 to 2015, according to advisory firm FTI Consulting. "When activists attain board seats, we found that CEOs leave their posts at twice the normal rate," said Steve Balet, head of corporate governance and activist engagement at FTI. Average CEO turnover was 16.6% within a year for a firm without such an investor, and 30.9% over two years, FTI said, using a set of 2,500 companies, and data provided by S&P Capital IQ and PriceWaterHouseCoopers. When an activist gained board seats, CEOs left their firms 34.1% and 55.1% of the time in those respective periods. "It seems natural that there would be an increased rate of CEO turnover, but activists generally don’t publicly target the CEO for replacement," Balet said. "Even in cases where activists do not gain board seats, CEOs leave their post 71 percent greater than the normal rate."
BNY Mellon CEO: Bank Embraced Criticism From Activist Investors
" Bloomberg (09/18/16) Wille, Klaus"
Bank of New York Mellon Corp. (BK), under pressure from shareholders, has met or exceeded targets set in its program to boost profitability, according to CEO Gerald Hassell. The executive says the bank's cost-cutting program has been effective and that investors appreciate the efforts. “The active investors have now seen those improvements pull through our earnings, and our stock price has been reflecting it,” Hassell said in an interview on Saturday. “The trick is to embrace the criticism, adopt a program to really improve your company structurally and sustainably, and show your investors that you can do it.” Hassell has sold the bank's Wall Street headquarters, reduced the real estate occupied by employees, and streamlined technology operations. The “business improvement process” will continue, he said. Trian Fund Management, which has representation on the board of directors, owns about 3% of BNY Mellon. Trian accumulated its stake in 2014, seeing potential for improvement at a company that had underperformed competitors in profitability.
A Fitter Perrigo Is in Activists' Interest
" Wall Street Journal (09/12/16) Grant, Charley"
Starboard Value, which acquired a 4.6% stake in Perrigo (PRGO) and is pushing it to consider selling certain assets, may want to rethink its campaign. Perrigo's stock is down more than half from last year's high, and the company has cut its earnings forecasts three times since shareholders snubbed a hostile takeover bid from Mylan NV (MYL) last year. In order to reduce leverage and better streamline the company's portfolio, Starboard wants Perrigo to consider selling the generic drugs business or royalty rights to the Biogen drug Tysabri and focus on its main business of store-brand over-the-counter medicines. The challenge in this argument is that Perrigo actually is performing fairly well. Market value, adjusted for net debt, trades at almost 12 times earnings before interest and taxes plus depreciation and amortization. While well below the valuations of the past two years, which were inflated due to the merger mania, Perrigo's current valuation is hovering near its 10-year average. In addition, analysts at RBC Capital Markets say the generics business and Tysabri make up nearly half of operating income. A smaller pie with a higher valuation may not necessarily result in a better outcome for shareholders. Although Perrigo could use a jolt, overhauling the portfolio seems less important for shareholders than turning around the deteriorating trend in core businesses.
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