This past Thursday I tool a look at Dupont (DD) and had the following to say regarding the potential for further activist investor interest (Activist Foxcatcher):
I suspect we will see activist involvement soon enough, but the problems for DD at the moment don’t appear to be structural, they seem to be macro. The stock is on my watch list primarily because their fifth largest holder had a strong interest much higher. I suspect he likes it even more here.
And yesterday morning, Trian, the activist that had launched (and subsequently failed to win) a proxy fight revealed that they had in fact increased their holdings in DD, and after the close the company announced that their CEO would be stepping down. Shares of DD are trading near $55 in the pre-market, up 15% from Friday morning’s lows. Investors obviously think that Trian’s (former) plan for DD may in fact be better than the one that they had endorsed by the company (and the old CEO) earlier in the year. DD pre-announced a poor quarter, and with an interim CEO and the potential for the board to work with Trian, the stock has likely found a near term floor in the highs $40s (barring a broad market meltdown) and will be on a shopping list if it re-traces the recent move.
Trian’s other Target:
Trian had a busy day yesterday, also announcing that they had taken a $2.5 billion stake in General Electric (GE) making it a top ten shareholder in the $270 billion market cap company (it rallied 5% yesterday on the news). As a side note, yesterday’s rise in GE’s value helped it notch above Facebook’s $265 billion market cap. GE is expected to have $124 billion in sales in 2015 vs FB’s $17 billion and they are assigned the same market value. This is the market you are invested in. GE is already in the midst of a transformation, earlier in the year announcing their intent to sell off/ dispose of financial assets/businesses and return much of the proceeds to shareholders in the form of dividends and share buybacks. Obviously, there is no target too large for activists.
Who else is on the Activist Chopping Block?
IBM seems like an obvious target as the stock is down a little more than 30% from its early 2013 all time high, with earnings down 8% since their peak that year, and sales this year expected to be down 23% from their 2011 peak. The company has been divesting non-core businesses and focused on faster growing cloud based businesses while using every dollar of free cash flow in the couple year’s prior to 2015 to buyback shares and pay dividends (in Jan the company said they expect to spend half of the nearly $14 billion in buybacks in 2014 this year). And Warren Buffet is the largest shareholder of IBM with 8% of the shares outstanding. IBM would certainly be a headline worthy target setting the stage not only with a c-level suite and a boardroom, but potentially an activist view that could be at odds with one of the most esteemed investors on the planet. The main focus here should be how to stem the sales decline, from $107 billion in 2011 at its peak to an expected $83 billion this year. Maybe the company needs to be smaller before it can grow again, but it seems the current management, board and large investors are a bit shell-shocked and could use a little push.
And one more thing, activist investing is a bull market strategy. So if you think the bull is back on, buy potential or stated targets. But recognize that most activists see problems that they want to help fix, and this is a much easier endeavor in a market that rises amid prospects of an improving economy. I am not sure either condition is being met.