| Paul Singer, Elliott Management Corp. (Bloomberg) |
Paul Singer’s Elliott Management Corp. has taken a sort of victory lap in its battle with software maker CDK Global.
In a letter made public Thursday, the New York hedge fund firm praised the company for quickly making several positive moves since Elliott issued a list of recommendations — and some demands — just a month ago. At the same time, Elliott used the opportunity to press harder for more changes, and sooner rather than later.
It is one of several battles involving Elliott that have come to light this week in an otherwise quiet activist environment. Elliott, which is best known for its activism but is really a multistrategy manager, has also launched a campaign against homebuilder PulteGroup and is even taking on a Panamanian law firm, the latest in a long line of foreign firms or countries that have been targets of the aggressive hedge fund firm.
Elliott is the 17th-largest hedge fund firm in the world, now managing $28 billion. Its hedge funds are up 5 percent through the first five months of the year, despite suffering a small loss in May.
CDK Global is a software company that serves the auto industry and was spun off from Automatic Data Processing in October 2014. CDK has attracted a fair amount of activist investor followers since then, including Elliott, which first revealed its stake in May 2015.
Last month the hedge fund firm fired off a letter to the company laying out a 13-page “Value-Maximizing Plan,” which called on the company to reduce a variety of costs; restructure its software development, customer support and implementation organizations; and take other measures to boost the value of its stock. It also urged the company to increase debt to immediately repurchase a huge amount of stock. “Given the nature of CDK’s business and its low customer concentration, we believe there is no business purpose for maintaining an investment-grade rating,” Elliott asserted in the letter.
Sure enough, just several weeks later, CDK announced what it described as “a comprehensive streamlining of its organization.” It said it would reorganize the company into two main operating groups — CDK North America and CDK International — integrate product management, create a single North America sales organization, and form a single global research and development organization, among other initiatives. It also announced “a number of leadership changes.”
Then on Wednesday, it announced plans to accelerate the remaining $710 million of its $1 billion stock repurchase plan.
“Today’s announcement reflects our commitment to listening to our shareholders and returning value directly to them on an expeditious and prudent basis,” said Brian MacDonald, president and chief executive officer, in a press release.
Elliott praised these moves in its letter, sent on Thursday to management and signed by senior portfolio manager Jesse Cohn.
The hedge fund firm also detailed how its plan has been “widely accepted” by shareholders, stressing that it has heard from and received support from more than half of CDK’s shareholders. The letter also includes a series of anonymous recommendations and general comments attributed to top-ten and top-20 shareholders.
Cohn tells CDK that the key takeaways from several dozen calls it received from investors is that “shareholders overwhelmingly believe that CDK should seize this opportunity to both improve operating performance and return capital,” and “shareholders are awaiting clarity from the Company on its willingness to act swiftly on these opportunities.”
Meanwhile, earlier this week CNBC reported that Elliott owned a stake in PulteGroup. “Elliott recently informed us that they have taken a position in the company,” PulteGroup told Bloomberg in an e-mail. “We welcome dialogue with all of our shareholders.”
Elliott did not disclose owning any shares of Pulte in its first-quarter regulatory filing.
“We believe PulteGroup is an undervalued asset and are happy that a well-respected hedge fund agrees,” the grandson of co-founder and largest shareholder, William Pulte — who has the same name — told Bloomberg in an e-mailed statement.
Also this week the Wall Street Journal reported that Elliott is suing Panamanian law firm Mossack Fonseca, which is at the center of the so-called Panama Papers scandal. The case is related to Elliott’s successful battle with Argentina over its defaulted debt.
According to the report, an Elliott unit has charged Mossack with engaging in a scheme to hide Argentinean assets, accusing it in a lawsuit in Nevada of “concealment and destruction of evidence.”
This is not the first time Singer has taken on a foreign company. We noted earlier when Singer qualified for Alpha’s Rich List that in the past he has gone to battle with South Korea’s powerful Lee family, which controls the Samsung Group conglomerate, in an unsuccessful attempt to block a merger. In addition to Argentina, he has tangled with Peru, the Republic of the Congo, and Vietnam through that country’s state-owned shipbuilder, Vinashin.
Meanwhile, in late May, Ares Capital Corp. announced plans to acquire American Capital in a deal involving business development companies (BDCs). Elliott is the largest shareholder of American Capital. Under a deal, American will reimburse Elliott up to $3 million in expenses, whether or not the merger deal goes through.
