An activist position in Cliffs Natural Resources (CLF) that I wrote about Tuesday started me thinking about where we might be able to find other interesting companies that activists were involved in but were not quite on the Carl Icahn-type radar screen. Many smaller activists do not attract the same massive media attention as Icahn but still manage to achieve outstanding results and unlock shareholder value in undervalued or mismanaged companies. The companies they target do not show the same type of huge advances that occur when someone Like Daniel Loeb of Third Point or Carl Icahn announce an activist position in a particular company. Individual investors can often get in at close to, or even lower, prices than the activist paid.
Hudson Global (HSON) is a professional recruitment and staffing company that offers managed review and legal staffing to corporations, financial services institutions and law firms. It has operations in more than 20 countries. The company has not really performed very well with sales and earnings, both down over the past five years, and this has attracted the attention of several activist investors. Last May it gave investment fund Sagard Capital a non-voting board attendee position to allow the activist firm to have a greater voice in the company's business.
Now Heartland Advisors has changed its 13%-plus holding to an active opposition. It combined with other investors to form Concerned Hudson Stockholders, a group of stockholders who own more than 14% of the company combined. The group sent a letter to the Hudson board calling for specific changes and pointing out that, "Over the past ten years, while the value of all major stock market indexes has appreciated substantially, the share price of HSON has declined in value by more than 60%."
Lone Star Value has also filed a 13D with the Securities and Exchange Commission disclosing total ownership of 6.8% of the company and announcing their intention to nominate two directors at the next annual meeting. Lone Star said in the filing that they believed the shares were an attractive investment opportunity and that they "have engaged, and intend to continue to engage, in discussions with management and the Board regarding the nomination of directors at the 2014 Annual Meeting and the composition of the Board, generally, as well as ways to enhance shareholder value."
The three activists combined own about a third of Hudson at this point. The company may put up a good fight for a while using a poison pill place and other corporate governance techniques, but this is a losing proposition for existing management. There will be changes at this company soon that are designed to move the stock price higher and I would have to think that forcing the outright sale of the company is now out of the question. Insiders do not own enough stock to block a move if it comes to a full vote of shareholders, and I cannot imagine a scenario where other institutional shareholders side with management.
Lone Star also recently joined with JCP Investment Partners to accumulate a significant position in shares of convenience store operator The Pantry (PTRY). The two firms own a little less than 2% of the company but are nominating directors for the 2014 shareholder meeting and election. They sent a letter to the board and pointed out that "Pantry's Total Shareholder Returns over the last 1-, 3-, 5- and 10-year periods on an absolute basis and relative to its peers and the S&P 500 Index have been abysmal. The Company has delivered negative returns to shareholders over many consecutive years."
Management owns very little stock in the company and institutions own more than 80% of the shares outstanding, so I suspect the activist firms may be successful in shaking things up. The Pantry owns and operates 1,548 stores in 13 states under the Kangaroo Express banner, and I have to believe it would not be difficult to find a strategic buyer for the chain.
Following activist investors makes sense for the individual investor. While they are not always classic value investments, there are special situations where you have an advocate in the form of the investment fund that wants to see a much higher stock price sooner rather than later. We are looking for the same result when we invest, so it is worth a few hours a week perusing 13D filings to find good portfolio candidates.