Two shareholders of Sabra Health Care REIT (SBRA) on Monday opposed the company's proposed acquisition of Care Capital Properties (CCP), calling the deal too costly. During a presentation, Hudson Bay Capital Management, which owns about 3.4% of Sabra, called on shareholders of the healthcare-focused real estate investment trust to reject the merger at a shareholder meeting next month. Sabra was overpaying for Care Capital's assets by up to 30%, according to Hudson Bay. And in a letter, Eminence Capital, which owns about 3.9% of Sabra, said the deal would reverse the company's efforts to reduce exposure to skilled nursing facilities. Sabra owns real estate properties that serve the healthcare industry in the United States and Canada, while Care Capital has a portfolio of healthcare properties focusing on the post-acute care sector. In March, Sabra, which has a market valuation of about $1.6 billion, said it would buy Care Capital in an all-stock deal that would value the combined company at about $4.3 billion. Sabra said it would benefit from lower costs of capital by merging with Care Capital and that the deal would add to its earnings immediately.
Small shareholders are pushing for a board seat in Alembic to ensure better investor returns. Sources in the investor community say that most of these minority shareholders (around 440 of the total 1,000) were "created" in the last three days. The shareholders have moved a resolution to appoint a director, Murali Rajagopalachari, vice president of Unifi Capital, on the board of Alembic on their behalf at the company's annual general meeting on July 28. Unifi Capital has a 3% stake in Alembic. Shareholders have the right to raise their voice if they feel that value can be unlocked, says Shriram Subramanian, managing director of proxy advisory and corporate governance firm InGovern Research Services. "Although this is something new for India, it happens quite often in the United States," he said. Alembic de-merged Alembic Pharmaceuticals in 2011 with the intention of pursuing growth in formulations and export business. The holding company Alembic, which has interests in real estate (it has unused land assets), also has a market capitalization of Rs 1,190 crore, but it holds 30% in Alembic Pharmaceuticals, which has a market capitalization of more than Rs 10,304 crore.
Hudson's Bay Co. (HBC)—under pressure from shareholder Jonathan Litt—is unlikely to take its vast real estate holdings public any time soon, according to the head of RioCan Real Estate Investment Trust, a partner in a venture that holds some of those assets. Initial public offerings (IPOs) of two joint ventures with billions of dollars in U.S., European, and Canadian real estate are "unlikely at this point" because market conditions are poor, RioCan founder and CEO Edward Sonshine said in an interview on Thursday. The retailer formed those ventures in February 2015, one with RioCan and another with U.S.-based Simon Property Group Inc. (SPG). It said at the time the combined value was $3.8 billion. Sonshine, whose firm owns 12% of the Canadian real estate venture, said an IPO was not realistic. "The prevailing narrative is that retail is dead," said Sonshine, who disagrees. He added that HBC had many other options to get cash from its properties, including sale-leasebacks, financing, or subleasing. "It shouldn't be hard because it's great real estate," he said. HBC is under pressure from Litt to consider options including repurposing its real estate, closing stores, or taking the company private. Litt revealed a 4.3% stake in the company in June.
Australian institutional investors have welcomed Ken MacKenzie's rare step of meeting with large shareholders before becoming BHP (BBL) chairman in September, and have urged him to improve BHP's capital management and communication with shareholders. His decision to hold meetings reflects the pressure from institutional shareholders, including Elliott Management, to improve the miner's performance. MacKenzie's focus as chairman will be on capital allocation, ensuring return hurdles for investments and acquisitions are met, and board renewal. Paul Xiradis, Ausbil's executive chairman and chief investment officer, said it was a "little unusual" for a chair-elect to meet shareholders before starting in the job but "given the intensity of what's happening with Elliott and others I think it was the right move, and also institutional investors were keen to catch-up with Ken." Aside from better capital management, Xiradis also stressed the need for better communication and engagement with shareholders from BHP's board and management. MacKenzie's numerous meetings with institutions were considered an important step in that direction. BT Investment Management's head of equities Crispin Murray was another shareholder who met with Mackenzie and said the "chat was very good." "He's focused on things we think are important: capital allocation, returns on capital, and making sure they can make a difference," he said. "Ken's a good choice as chairman. He did a good job at Amcor."
BHP Billiton (BBL) appears to be preparing for a big move in the oversupplied potassium fertilizer business, but Elliott Management is unimpressed. After BHP's chief potash analyst wrote a bullish blog item on the commodity's outlook, Elliott warned that the comments sounded "alarmingly familiar," considering the miner just wrote off more than $10 billion in U.S. shale investments. Deutsche Bank estimates the massive Jansen mine the company is building in Canada could ultimately cost $13 billion to develop. The amount of money involved could make BHP's potash move its most important strategic decision over the next five years. Potash is a risky bet; however, it is incorrect to draw a direct analogy between it and shale. BHP's main mistake there was investing at the top of the commodity bubble in a new, highly technical sector in which it had little experience. By contrast, potash prices are down by more than half from their 2008 and 2009 peaks, and the mining technology is well established. The main worry with potash is not demand, but supply: the market is expected to be saturated for the next decade, driven by major producers in Canada and Eastern Europe. BHP's project would not come online until the mid-2020s, but margins might be unimpressive for the first few years. Potash in 2017 makes more sense than shale in 2011, but it is still a risky gamble.
U.S. investment management firm Oaktree Capital Management is turning to both the Ontario Securities Commission and Quebec's Autorité des marchés financiers to address some of its concerns about Rayonier Advanced Materials' proposed takeover of Tembec Inc., saying there are disturbing questions about the role of Fairfax Financial Holdings Ltd. in the deal. Fairfax is based in Toronto while Tembec's headquarters are in Montreal. Los Angeles-based Oaktree is Tembec's biggest shareholder with a nearly 20% stake. The complaints come amid souring prospects for the US$807 million transaction. Oaktree and Restructuring Capital Associates, another Tembec shareholder, have both said the offer is too low, a view supported by proxy advisory firm Glass Lewis & Co., which is recommending Tembec investors vote against the deal. Oaktree's appeal to regulators centers on the declaration, made by Tembec and Rayonier when they announced their friendly merger May 25, that Fairfax, a major Tembec shareholder, "is supportive of the transaction." Fairfax subsequently sold its position in Tembec in the days that followed. However, because it was an investor as of the so-called record date—the cutoff used by companies to establish who their shareholders are—it might be entitled to vote the stake it held at that time despite the fact it has since cashed out.
ABB's chief executive, Ulrich Spiesshofer, is under pressure to address lower profitability at the Swiss engineering company after higher raw material prices and overcapacity issues pinched its quarterly earnings. The company reported a smaller-than-predicted gain in net profit on Thursday, sending its shares down 3% and putting pressure on Spiesshofer, who promised last year to boost the stock. Spiesshofer said he did not feel under particular scrutiny from Cevian, ABB's second-biggest shareholder, which last year campaigned for a split of ABB's Power Grids business and which joined ABB's board earlier this year. "The Cevian relationship is a very good one, we are working very well together," he said. Cevian owns more than 5% of ABB stock. Spiesshofer was speaking after ABB reported that net profit rose 29% to $525 million for the three months ended June 30 from $406 million a year earlier, missing forecasts of $580 million in a Reuters poll. The earnings shortfall means investors' patience could now be running low with Spiesshofer, who became CEO in 2013, analysts said. "Investors are getting more concerned about the decline in profitability," said Richard Frei, an analyst at Zuercher Kantonalbank. "There has been a lot of restructuring at the company, which has yielded results, but now the effects are getting smaller."
Ansaldo STS CEO Andrew Barr said the Italian rail-signaling company is seeking small acquisitions to offset a slowdown in the sector. However, it sees no quick solution to its battle with investment funds, led by Paul Signer's Elliott Management, holding nearly a third of the company. The investment funds have been in a feud with Ansaldo STS's controlling shareholder Hitachi since it bought the company in 2015, challenging the price paid, governance, and strategy. Elliott is Ansaldo STS's second-biggest shareholder, with a 22.5% stake, an option to buy another 8.8%, and three board seats. Hitachi initially acquired 40% of Ansaldo STS from Italian defense conglomerate Leonardo but later raised its stake to 51% through a mandatory buyout of minorities. However, it failed to reach the threshold required to delist Ansaldo STS and fold it into its own operations. Elliott made several complaints to the market regulator and filed a lawsuit that is now before the European Court of Justice, arguing that the bid price was too low. Elliott alleges that Hitachi underpaid by colluding with the seller and questions the independence of Ansaldo STS's board.
Glass Lewis & Co. has given its support to Oaktree Capital Group LLC's (OAK) attempt to block a proposed takeover of Montreal-based Tembec Inc. by Rayonier Advanced Materials Inc. (RYAM). The shareholder advisory firm urged investors in the Canadian lumber and paper producer to vote against the deal, arguing that the purchase price is too low. In its report, Glass Lewis also noted that there has been a significant increase in Rayonier Advanced's shares since the deal was announced, which indicates that it is underpaying and could afford to share more of the potential value with shareholders. "Putting these factors together, we believe there is reasonable basis for shareholders to expect more for their shares," Glass Lewis said. Oaktree, which owns 19.9% of Tembec, issued a statement agreeing with the advisory firm's conclusions. It sent a letter to the boards of both companies on July 14 stating that it would vote against the deal if the purchase price is not increased. Tembec's second-largest shareholder, Restructuring Capital Associates LP (RCA), which holds about 17.1% of the company's outstanding shares, has also come out against the deal. According to Glass Lewis, Oaktree and RCA have sufficient voting power to block the transaction, as a two-thirds majority is required to approve it. However, Institutional Shareholder Services Inc. has recommended that shareholders support the deal because it offered them flexibility to benefit from the upside of the combined business.
Dialectic Capital Management LLC, one of the largest shareholders of Covisint Corp. (COVS) with beneficial ownership of approximately 7.7% of the company's outstanding shares, has issued a public letter to shareholders announcing its intention to vote against the proposed acquisition of Covisint by Open Text Corp. at the company's July 25 special meeting. "Following years of mismanagement under the leadership of the board of directors and management team resulting in a depressed valuation, we believe it is wholly irresponsible for the Company to be sold now after posting its first quarter of profits," the letter stated. "Plain and simple, we believe the $2.45 per share price that is being offered to Covisint shareholders is completely inadequate. The current offer is seemingly representative of a company in secular decline with no growth opportunities, low margins, and no proprietary technology—none of which is the case with Covisint." Dialectic Captial added, "If the Company were to focus its sales efforts on the auto end market with an emphasis on existing customers, adjust its cost structure to be run profitably and look to grow responsibly either through small acquisitions or internal development, we believe the Company could be sold in the future for a much higher price."
CSX Corp. (CSX) shares are tumbling after CEO Hunter Harrison revealed on a Wednesday morning earnings call that he does not plan to stay at the company for too long. "I'm a short-timer here," Harrison told analysts. "I'm the interim person that's going to try to get this company to the next step and good foundation." Harrison's statement, along with declines in overnight trading, overshadowed the railroad company's strong second quarter. CSX netted $510 million in earnings, $65 million more than the same time last year. CFO Frank Lonegro attributed the growth to increases in coal pricing and efficiency savings of $90 million. Efficiency is a key focus of Harrison, who is implementing a precision scheduled railroading model. The railroad's operating ratio—an important measure of efficiency—improved from 69.4% for all of last year to 67.4% for the quarter, while revenue increased 8%. There was also an 8% decline in expenses since the last quarter, the result of CSX reducing its locomotive fleet, workforce, and hump yards. Harrison noted that more cuts are ahead, saying increased efficiency will attract more customers. For investors, Harrison's emphasis on efficiency brings hopes of faster future earnings, said Edgar Jones analyst Dan Sherman.
The fate of a planned takeover of Quebec-based Tembec Inc. by Florida-based Rayonier Advanced Materials (RYAM) is in the hands of investors, who must cast at least two-thirds of votes in favor at the upcoming shareholders meeting for the deal to proceed. However, Tembec's largest shareholder—Oaktree Capital Management, which owns a 19.9% stake—and others are resisting the deal. Under the US$807 million agreement, shareholders can accept $4.05 in cash or 0.2302 of a Rayonier share. Oaktree, which calls the transaction "flawed," plans to solicit proxies from those opposed to the deal. It also raises the issue of empty votes, as Fairfax Financial—which had been Tembec's largest shareholder when the transaction was announced on May 25—has since sold off its 19.99% stake and "no longer beneficially owns, or has control or direction over any of the outstanding share," according to a filing. Fairfax received a higher price than Tembec's shareholders stand to when they vote on the takeover on July 27. Meanwhile, Restructuring Capital Associates L.P., Tembec's second-largest shareholder with a 17.1% stake, said it expects to vote against the takeover unless Rayonier sweetens its offer. It added that its support hinges on whether "Rayonier responds more appropriately to the points made by Oaktree ... Oaktree makes a compelling case that Rayonier can and should improve its offer." With opposition from both Oaktree and Restructuring, observers say it is impossible for the deal to reach the required two-thirds support threshold.
Elliott Management has beefed up its campaign engaging retail shareholders of BHP Billiton (BBL) in an effort to make further change and maximize value at the company. The New York-based hedge fund is playing on BHP's new marketing slogan "Think Big" by urging shareholders to "Think Smart" about their investment in the world's largest miner. These retail investors account for about 30% of BHP's 600,000 shareholders. Elliott has rolled out a new website, fixingbhp.com, and a digital campaign targeting Australian retail shareholders. The new website alleges that decisions by BHP's current management, including outgoing Chairman Jac Nasser, have destroyed US$40 billion worth of value in the company. The campaign—which focuses on abolishing BHP's dual listing to stop the destruction of franking credits, exiting shale, reviewing petroleum assets, and reforming the board and asking for improved dividend and share buyback policies to deliver more to shareholders—calls on shareholders to sign a petition supporting the changes. "A unified BHP with smart dividend and buyback policies could deliver twice as much return over five years on a $10,000 investment in BHP—effectively doubling Australian shareholders' yield," indicates the presentation.
Shareholders in Ericsson AB (ERIC) were reminded that fixing struggling companies is difficult and takes time when the Swedish company warned on July 18 that demand for its telecoms gear would remain weak and more cost cuts were needed in its turnaround. The company's shares fell 13%, reversing the gains since CEO Borje Ekholm assumed the top post in January. Observers believe Ericsson's board, controlled by long-term shareholders Investor AB and Industrivarden AB, is to blame for the sense of drift after allowing the company to become bloated and unfocused. They believe the only reason for optimism is the arrival of Cevian Capital, which has built a 5.9% stake in the company since November. However, it controls only 3.5% of the voting rights, compared with the nearly 37% held collectively by Industrivarden and Investor. Cevian managing partner Christer Gardell publicly chastised the Ericsson board over its complacency soon after disclosing his fund's stake in late May, but more recently the fund has been working with Ericsson and signaled its support for Ekholm's planned revamp. Meanwhile, Chairman Leif Johansson said he will step aside before the 2018 annual shareholder meeting, after holding the position of chairman for the past six years. However, observers point out that Cevian is supposedly a patient activist that is now invested in a company where the Swedish model of patient capitalism has failed.
Tesla Inc. (TSLA) on Monday named 21st Century Fox Inc. (FOX) CEO James Murdoch and Ebony Media CEO Linda Johnson Rice to the board, expanding it to nine members. The move comes after a group of shareholders in April called for improved corporate governance at the automaker, including a request for two new directors with no prior personal or professional ties to CEO Elon Musk. Murdoch serves on the board of News Corp. (NWSA), is the chairman of Sky PLC, and took over at Fox in 2015. Rice, along with running Ebony Media, has also served on the boards of Omnicom Group Inc. (OMC) and GrubHub Inc. (GRUB). She becomes Tesla's second female director. Dieter Waizenegger, executive director of CtW Investments Group—a signatory to the April letter—applauded Rice's appointment for adding diversity to the board. He raised concerns about Murdoch, however, citing his handling of a phone-hacking scandal at the U.K. newspaper unit of News Corp. in 2011 as well as a recent controversy involving sexual-harassment claims at the Fox News Channel. Waizenegger believes those issues make Murdoch a poor candidate "for a board that really needs to prove that it wants to take up shareholder accountability several notches." CtW represents union-sponsored pension funds that own about 200,000 Tesla shares, while another pension fund that signed the April letter—the California State Teachers' Retirement System—owns approximately 248,000 shares, or 0.15% of Tesla.
Nelson Peltz on Monday announced he would seek a single board seat in a shareholder vote at Procter & Gamble Co.'s (PG) annual meeting, making P&G the largest company to ever face a proxy fight. Peltz's Trian Management Fund argues that P&G failed to capitalize on a five-year savings plan that shrank the company by tens of thousands of employees, more than a dozen factories, and hundreds of brands. Trian questions whether a second $10 billion savings plan announced by P&G last year will produce results. On Monday, P&G began mounting its defense, first citing a series of metrics outlining the company's improved profit margin, leaner structure, and healthy cash generation. Trian, in meetings with P&G CEO David Taylor and other managers, offered no specific suggestions on how the company could better optimize cost savings, and was largely complimentary, according to sources. P&G ultimately saw no value in adding Peltz to the board, they said. The investor is not saying explicitly it wants more cost cuts than the $10 billion P&G has targeted, and is not giving specifics on how it would tackle the costs. But Trian is concerned about whether the goal will be reached. Trian says years of P&G's underperformance in revenue and the stock market have raised questions about why the board should be given another year to execute without Peltz in the boardroom to help guide management. Central to Trian's case is the fate of about $3 billion of the $10 billion in P&G's previous cost reductions. Trian argues that if P&G were operating efficiently, the $3 billion would have shown up in increased sales and profit growth, both of which have been stalled for years.
Elliott Management's continuing engagement campaign with BHP Billiton's (BBL) institutional investors appears to be paying off, with top shareholders endorsing the hedge fund's push to shake up the miner's structure and petroleum division. Elliott is believed to have backed the appointment of Ken MacKenzie as BHP chairman last month but wants to discuss how best to collapse BHP's dual-listed structure and separate the company's petroleum division. Australian Foundation Investment Company (AFIC) and Wilson Asset Management (WAM) both said they had met with Elliott and welcomed the investor's campaign. "I actually think they have been helpful in the sense that they have brought into the public focus the fact that BHP has actually underperformed over the last three, five to 10 years and nobody can deny that is true and management and the board aren't denying that either," said AFIC managing director Ross Barker. WAM portfolio manager Matthew Haupt agreed that the debate prompted by Elliott had been valuable. "I think it's healthy to have constructive debate around best use of funds," he said. "I am supportive of those things, as long as they're constructive, and Elliott has been." AFIC and WAM's comments mirror previous sentiments from other BHP shareholders, including Aberdeen Asset Management, Argo Investments, BT Investment Management, and Tribeca.
Canadian fund West Face Capital has raised concerns about the expansive transatlantic operations of FirstGroup, indicating it might push for a breakup of the bus and rail operator. West Face reportedly believes the line's U.K. base is stifling the true value of its North American operations. The hedge fund in June disclosed a 5% stake in FirstGroup, becoming its fifth-largest investor. FirstGroup is listed on the U.K. stock market and is one of Britain's biggest transport groups. However, the company makes more money in the United States and Canada, where it transports millions of students to school in its iconic yellow buses and manages the Greyhound coach network. FirstGroup posted £284 million of operating profits last year, 85% of which came from North America. Nonetheless, a source close to West Face explains, "The U.K. seems to be the tail that wags the dog, and so you have a situation where the share price is being affected by everything from Brexit to relatively small variances in the UK rail business, and that causes the whole enterprise value to trade cheaply."
Microsoft's (MSFT) board of directors has adopted a policy that is geared toward restricting the average tenure of independent directors to 10 years or less. The move is a bid to help inject new opinions into the company's governing council. The revised language in the tech giant's corporate governance guidelines formalizes moves directors have made in recent years to make the board more responsive to change. Two years ago, Microsoft added provisions to its bylaws that give big shareholders more of a say in nominating board members. Microsoft's current slate of independent directors has an average tenure of about five years, down from an average of more than nine years in 2013. "There is a presumption that, after so many years on the board, a director is no longer independent," notes Marc Goldstein, director of U.S. research with Institutional Shareholder Services. However, it's a balancing act, he says. "As Microsoft points out, directors who have been on the board for a longer period might have the context, the institutional memory to effectively challenge management."
NRG Energy Inc. (NRG) said July 12 that it would sell up to $4 billion in assets, cut costs, and lower its debt as part of a "transformation plan." NRG, a leading owner and operator of power plants, said it may even sell its ownership stake in NRG Yield Inc., a dividend-generating company with renewable energy holdings. The moves are among the final steps to undo an unsuccessful plan under a previous NRG chief executive to diversify into wind and solar and away from coal and gas. The strategy was a drag on earnings and depressed the company's share price. Elliott Associates LP in January teamed with Bluescape Energy Partners LLC to purchase a combined 9.4% stake in NRG. In a January letter, Elliott said NRG's stock was "deeply undervalued," but could be improved with operational and financial changes. NRG re-worked its board of directors in February, adding three new members with ties to the new investors. Jeff Rosenbaum, portfolio manager at Elliott Management, stated that he was "pleased that this process has delivered such a strong plan for shareholders."