| Jeffrey Smith, Starboard Value (Bloomberg) |
So, you want to spot the next activist target?
Investors who study the 13F filings of equity holdings from asset management firms are particularly interested in looking at the disclosures of the hedge fund managers, hoping they are foreshadowing the next target. Investors may be disappointed, however.
Activists, well aware that all of their actions are watched, can be paranoid — sort of like celebrities worried about smartphone videos — so they try not to leave much of a trail. As a result, many of the more recent high-profile activist battles involved positions that were not disclosed in earlier filings, so investors were unable to intentionally or accidentally play them in advance.
Sometimes activists seek and receive waivers from the Securities and Exchange Commission enabling them to delay disclosing certain sensitive positions in 13F holdings.
“As soon as you file, you get a snap reaction,” ValueAct Capital’s Jeffrey Ubben told me a year or so ago.
He noted that this tendency has affected his entry point. He lamented at the time that he filed fewer 13Ds than he had in the past in part because the stocks on his “farm team” ran up before he was able to buy enough shares at the price he wanted. “You must be able to strike very fast,” he warned.
When Ubben announced in late April 2013 that he had taken a $2 billion stake in Microsoft, there was no indication this was coming since his most recent 13F quarterly filing disclosing his stock holdings — which covered the December 2012 quarter — did not contain a share of the software giant.
The same is true for another recent high-profile activist battle. When Darden Restaurants announced on December 19, 2013, that it planned to spin off its Red Lobster chain, it placated activist James Mitarotonda of New York–based Barington Capital Group, which owned 2 percent of the company at the time and was pushing for this kind of move.
Mitarotonda is not exactly among the activist elite, however. On December 23, high-profile activist Jeffrey Smith’s Starboard Value filed its 13D indicating it owned 5.5 percent of the stock and launched its campaign opposing the sale of Red Lobster. Eventually, Starboard launched a full-fledged proxy fight and won, taking control of the company’s board of directors.
However, at the time the firm publicly disclosed its initial position, there was no way of playing Starboard’s involvement in advance. Starboard did not own any shares of Darden at the end of the third quarter of 2013, the most recent period for which stock positions were disclosed when Smith got involved.
Some of the biggest activist fights this year were also not telegraphed by earlier regulatory filings. For example, Barry Rosenstein’s New York–based Jana Partners announced in mid-April of this year that it owned more than $2 billion of Qualcomm and was pushing the chip maker to split its semiconductor business from its patent-licensing unit and to accelerate its stock buybacks, cut costs and revamp executive compensation.
It wasn’t until the same day that Jana disclosed in an amended 13F filing for the fourth quarter that it owned more than 4.4 million shares of Qualcomm, worth $327 million at the end of that period, as well as $458 million worth of call options on the stock, using one of those SEC waivers.
And when Jana disclosed in late June in a regulatory filing that it owned 7.2 percent of ConAgra Foods, it was the first time the public learned of that position. The hedge fund firm, which said it was prepared to nominate three individuals, including Rosenstein, to ConAgra’s board had not indicated owning any shares of the food processor in its first-quarter 13F, the most recent one filed at the time.
More recently, when Nelson Peltz’s Trian Fund Management disclosed it owned 7.08 percent of Sysco Corp. on August 14, it was the same day it filed its 13F for the second quarter, which showed the New York activist owned shares of the wholesale food distributor at the end of that period.
That said, sometimes you get a sneak peak of a future activist target. When Keith Meister’s New York–based Corvex Management announced its activist campaign against Yum Brands in early May, some investors were aware that the firm had owned shares in the fourth quarter, which had the most recently filed 13F at the time.
However, that was not typical, at least for the more high-profile activist battles.
