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Infoblox, Depomed, Insperity: Inside Starboard Value’s 5 Biggest Moves of Q2

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Founded by Jeffrey Smith in 2002 via a spin-off from Ramius, Starboard Value LP has grown to become one of the most feared activist hedge funds in the corporate world. Although the fund only manages assets worth around $4.7 billion, considerably less than some of its peers, the number of successful proxy fights and activist campaigns it has launched over the past decade-and-a-half put many other activist funds to shame. The New York-based fund recently submitted its 13F filing with the SEC for the reporting period of June 30, revealing a U.S. equity portfolio containing $2.82 billion worth of holdings.

According to the filing, Starboard Value’s equity portfolio consisted of 24 long positions at the end of the  second quarter and its top-10 holdings accounted for over 85% of its portfolio’s value. The filing also revealed that during the second quarter the fund initiated a stake in six stocks, added more shares to four positions, reduced the size of its holdings in eight stocks, and sold out of one equity entirely. In this post, we will take a look at five major moves the fund made during the second quarter and discuss how those stocks have performed this year.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).Jeff Smith

Infoblox Inc (NYSE:BLOX)

– Shares Owned by Starboard Value LP (as of June 30): 3.85 Million

– Value of Holding (as of June 30): $72.23 Million

Let’s start with Infoblox Inc (NYSE:BLOX), which was a new entrant to Starboard Value’s equity portfolio during the second quarter. A month after the fund disclosed initiating a stake in the company and declared its shares undervalued, Bloomberg reported that Infoblox Inc (NYSE:BLOX) has hired Morgan Stanley for activist defense. Infoblox shares have been trading in a range for the past 11 months, however they spiked on May 11 after reports emerged that the company had received a buyout proposal from private equity firm Thoma Bravo. Owing largely to that spike, they are currently trading up by 7% year-to-date. On June 12, the company announced that it would be laying off 12% of its workforce, or 110 employees under its restructuring program. Analysts expect Infoblox to report EPS of $0.06 on revenue of $84.51 million for its fourth quarter of fiscal year 2016. For the same quarter of the previous fiscal year, Infoblox pulled in EPS of $0.12 and revenue of $87 million. Billionaire Jim Simons‘ Renaissance Technologies upped its stake in the company during the second quarter by 24% to 1.23 million shares.

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Insperity Inc (NYSE:NSP)

– Shares Owned by Starboard Value LP (as of June 30): 1.5 Million

– Value of Holding (as of June 30): $115.54 Million

Starboard made a wise decision by cutting its stake in Insperity Inc (NYSE:NSP) by 56% during the second quarter, as shares of the company have slumped hard this month following its second quarter earnings release. The fund initiated its stake in the company during the last quarter of 2014 and launched an activist campaign against it immediately after, urging the company to consider selling itself or to look for other options to enhance its value. Though the company and the fund reached a settlement last year, Starboard launched a proxy fight against the company in March by nominating two dissident directors to its Board after fresh talks between Insperity Inc (NYSE:NSP) and the fund grinded to a halt. Nevertheless, the company and the fund again reached a settlement in May, under which Insperity agreed to appoint John Morphy, who was one of Starboard’s nominees, as a Class III director to its Board. Despite losing a large part of the gains they made earlier in the year during July, shares of Insperity are still trading up by 37.31% year-to-date. The company currently pays a quarterly dividend of $0.25 per share which translates into an annual dividend yield of 1.50%. Michael R. Weisberg‘s Crestwood Capital Management lowered its stake in the company by 29% to 134,832 shares.

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We’ll delve into three more big moves made by Mr. Smith’s firm on the next page.

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