Excited investors bid up the shares of the Manitowoc Co. by nearly 10 percent on Friday after Ralph Whitworth’s Relational Investors disclosed that it owned 8.52 percent of the maker of products for the crane and food service industries.
In a 13D filed after the market closed on Thursday, the San Diego–based activist investment firm said it told Manitowoc management in a meeting in January that a spin-off of the food business into a separately traded public company would maximize shareholder value, a tactic it successfully had advised several other companies to undertake on previous occasions. “To date, the board of directors of the company has declined our request for a meeting,” Relational states in its filing.
Glen E. Tellock, Manitowoc’s chairman and chief executive officer, confirmed in a press release that the company has “had several conversations” with Relational, adding, “We will continue to consider and review Relational Investors’ suggestions.”
The stock’s rapid run-up in reaction to the filing suggests that investors were taken by surprise by Relational’s investment. However, according to several other filings made simultaneously with the 13D, it turns out that the activist investor has been building its position in the company since at least the fourth quarter of 2013. However, it only got around to disclosing the holding for the first time on Thursday.
It was able to do so thanks to a controversial regulatory rule that Relational and many other activists, including Nelson Peltz’s Trian Partners, have used many times in the past but other activists, including Jeffrey Ubben’s ValueAct Capital, have chosen not to take advantage of.
The Securities and Exchange Commission allows investors to seek “confidential treatment” and delay the disclosure of a specific investment in a 13F filing, the quarter-end document that lists all U.S.-oriented equity investments. These filings are widely followed by investors and the media because they offer a snapshot — albeit a backward-looking one — into the portfolios of well-known investors.
The regulator will grant the request if it “is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets,” according to the SEC website. However, the grace period is limited to an amount of time that is “necessary to effectuate the manager’s investment strategy.”
This tactic, however, does not apply to a 13D filing, required when an investor acquires at least 5 percent of a stock. Under SEC rules, an investor filing a 13D may request confidential treatment for information they would like to have excluded from the 13D, but that does not extend the deadline for filing the 13D.
In the Manitowoc situation, Relational filed two amended 13F forms at roughly the same time it filed its 13D. It filed an amendment to its 13F filing for December 31, 2013, showing it owned roughly 4.43 million shares of Manitowoc, or nearly 3.3 percent of the total shares outstanding. Had it not delayed this disclosure, Relational would have announced this holding on February 14.
It also filed an amendment to the 13F for March 31 showing it owned 6.54 million shares as of the end of the first quarter, or 4.83 percent of the stock. Relational had filed its first-quarter 13F on May 15. Since Relational is well-known for its activist activities, the firm presumably feared that a disclosure of the positions on a timely basis would have driven up the stock price.
This is not the first time Relational has sought to delay a disclosure in its 13F. On May 30 it had already amended its first-quarter filing to announce it owned about $34.5 million worth of Magnum Hunter Resources, an oil and gas company.
On May 15 — the same day it filed its first-quarter 13F — Relational amended its September 30, 2013, filing to disclose that it owned more than two million shares of chemicals company W.R. Grace & Co. It also amended its filing for the following quarter to disclose that it had trimmed its Grace stake to 1.745 million shares and that it owned more than 1.5 million shares of First American Financial Corp., a title insurance company. It also filed amended 13F forms on seven different occasions in 2013 alone.
Of course, Relational is not the only investor to take advantage of the confidential treatment provision. For example, in late April we reported that New York–based Nelson Peltz’s Trian Partners disclosed in its first-quarter letter that it had established a new, large core position that accounts for 11 percent of its net asset value. However, it still has not disclosed the name of the company.
On the other hand, ValueAct’s Ubben told Alpha earlier this year that he has never sought this treatment. However, he asserted in an interview that mandated SEC disclosures, such as 13F filings and 13D filings, may cut into future returns. Ubben, whose firm is based in San Francisco, said his firm targets 20 percent returns and that this “new world” eats into his returns because of higher entry prices. He speculated that in the future this could cost as much as 3 percent to 4 percent of returns.
“As soon as you file, you get a snap reaction,” Ubben said.
Kind of like what Relational got on Friday.
