By Nadia Damouni and Olivia Oran
NEW YORK, June 17 Since Starboard Value LP was
spun off as a separate hedge fund just over two years ago it has
been fast gaining a reputation for aggressive shareholder
activism, pushing for change in household names including AOL
and Office Depot Inc.
Initially investing in small cap value companies, Starboard
quickly gained a reputation in Silicon Valley as a corporate
raider, targeting mostly technology companies including Agilysys
Inc, Openwave Systems and Extreme Networks Inc
among several others.
But more recently the New York-based hedge fund has had an
appetite for more diverse and larger companies, with its latest
campaign focused on the world's largest pork producer Smithfield
Foods Inc, in a move that could scupper China's biggest
takeover of an American company.
Consistent with its strategy - pushing for asset sales and
spin offs to board and management shake-ups - the fund is
pushing Smithfield to explore a breakup rather than go ahead
with the planned $4.7 billion sale to Chinese meat company
The activist investor, now Smithfield's biggest shareholder
with a 5.7 percent stake, said Smithfield could be worth 29
percent to 64 percent more than the $34 per share offered by
Shuanghui if it split up and shopped its hog production, pork
and international units separately [ID: nL2N0ET03A].
"Some activists have a massive repertoire of strategies they
use, but Starboard likes to get companies back to what they're
good at, such as splitting off business divisions that are non
core," said Kerry Pogue, managing director at Activist Insight,
a data provider that tracks activism.
Starboard, which was spun off from Cowen and Company's asset
management arm Ramius LLC in March 2011, is led by CEO Jeffrey
Smith, who has become the face and name behind the fund's
multiple proxy contests. He was not available for comment.
A major focus is board representation. This year, Starboard
launched seven proxy contests, of which six involved efforts to
gain board seats. For example in March Starboard nominated six
members, including former Home Depot CEO Robert Nardelli, for
the 10-member Office Depot board.
The investor cited the lack of retail experience among
current board members and stressed the need to reconstitute the
board whether or not its proposed merger with smaller rival
OfficeMax Inc takes place.
Its success stems largely from its concentrated portfolio,
owning shares in 24 companies worth a total of $1.1 billion as
of March 31, and its behind the scenes due diligence, said
investment bankers and other activists.
Bankers with knowledge of Starboard's strategy say the fund
will speak to a host of sources before taking a position,
including sector analysts, industry peers, proxy solicitors,
litigators, regulators and deal makers.
Smith and his 12-member investment team, which includes
former traders, research analysts and investment bankers, will
also speak with management in advance of filing with regulators
that it has bought 5 percent or more in a company, the sources
"Everybody thinks they do their work and they have a serious
approach to their diligence and investing. They have a good
reputation among activists," said a shareholder activist that
An investment banker that requested anonymity because he has
worked with Starboard said "Jeff Smith is one of the smarter
guys that you will meet... and over the last couple of years
Starboard has been the most active of all the activists."
Smith began his career in the mergers and acquisitions
department at Société Générale and is currently a member of the
board of hair salon chain Regis Corp. Although the fund
has seen its share of success in recent years, it has also been
met with challenges.
During its campaign last year against AOL, Starboard
maintained that AOL Chief Executive Tim Armstrong and his
management had failed with its strategy to double down on
transforming itself into a media and entertainment powerhouse,
citing AOL's costly investment in its network of local news
sites called Patch and losses at its display advertising
But the Internet company's institutional shareholders did
not agree. Instead of voting with Starboard's proposed director
candidates to AOL's board last year, which included Smith, they
decided to re-elect all of AOL's director candidates during the
annual shareholder meeting - an unusual defeat for an activist.
"Even if they technically lost AOL, they made a ton of money
and got the company to do some stuff that was incredibly
valuable," the activist investor that preferred anonymity said,
referring to AOL's eventual patent sale which resulted in $1.1
billion returned to investors.