The folks at New York-based activist hedge fund Starboard Value LP have quietly upped their stake in Progress Software to 8.7 percent.
It’sthe latest of several campaigns waged by Starboard, led by Jeffrey Smith and founded in March 2011 through a spin-off transaction from Ramius LLC, which is part of the Cowen Group. Prior to founding Starboard Value, the investment team, led by Smith, managed the Ramius small-cap value and opportunity investment business.
Despite losing a proxy fight with AOL back in May, Starboard has kept a low profile – but it has also kept busy. In just the past two months or so, it has launched two new battles and added to its stakes in several others.
Even as Starboard boosted its Progress position over the past month, it has shrewdly been buying shares when they have fallen below $19 and selling when they have climbed above $21. The recent flurry of trading came as Progress announced several critical developments, not all of them expected, such as the departure of its chief executive officer just one year after he arrived.
Starboard doesn’t bluff when taking an activist position. Since 2004, Starboard and its predecessor funds have added or replaced about 80 corporate directors on 30 public company boards. In about 90 percent of the cases where it has filed a 13D and nominated directors — except when the company sells itself during the process — it has wound up putting one or more of its nominees on the Board or reached a settlement with the company. “We are prepared to go to a proxy fight on every company in our portfolio,” Smith has stated in the past.
Starboard initially filed its 13D stating that it owned 5.1 percent of Progress’ stock in January. At the time, it told management in a letter that the stock market price failed to reflect the value of the sum of its three distinct parts. “We believe that there is a significant opportunity to unlock value at Progress for the benefit of all shareholders,” it added.
Starboard asserted the company’s Application Development Platforms business alone was worth as much as, if not more than, the entire market value of the company. It attributed the valuation discrepancy in part to the company’s conglomerate structure, consisting of a highly profitable mature business along with a money-losing growth business with little to no overlap.
Less than a week later, Starboard threatened to launch a proxy fight, submitting a slate of four nominees to Progress’ board of directors. It also repeated its earlier request to engage in some sort of dialogue.
As often happens in response to Starboard’s actions, in April Progress announced a new strategic plan that, in part, called for the divestiture of some non-core product lines as well as restructuring initiatives to significantly reduce costs. At the time, the company said the new plan was the result of a five-month comprehensive evaluation of the company’s product portfolio, business model, capital allocation strategy, customer base and future opportunities. That effort was led by president and CEO Jay Bhatt, who joined the company in December 2011. Less than two weeks later, Starboard withdrew its slate of nominees.
Starboard’s recent filing announcing its increased stake in Progress came one day after Progress announced a share repurchase plan to buy back up to $250 million of its common stock as part of its previously announced $350 million repurchase authorization. The week before, the company announced a deal to sell four non-core product lines to the investment arm of Trilogy Enterprises, a large privately held enterprise software company.
The two announcements, in turn, came two weeks after Progress announced Jay Bhatt is stepping down as President and Chief Executive Officer in early December, roughly a year after he took the job. He is leaving to become CEO of Blackboard, the e-education company, taking over for founder Michael Chasen, who resigned from the position.
Neither Smith nor the company would comment on what role, if any, Smith played in Bhatt’s departure. Smith and Starboard declined to comment for this story.
Observers familiar with the situation say Progress is continuing to execute the plan it announced earlier in the year, which is expected to significantly improve operating margins and in turn drive stock price appreciation.
So far it has been an uneven experience for Starboard. After watching the stock surge about 33 percent or so to the mid-20s in late March, the stock has fluctuated and is now around $19 or so — which is presumably why Starboard went back into the market and bought more shares.
However, you can bet that if the stock languishes for a longer period of time, Smith no doubt will be back with more suggestions as to how to turn things around.
