Jana Partners Becomes QEP Resources’ Largest Shareholder. Why?

According to an amended filing with the SEC, Barry Rosenstein’s Jana Partners increased their holdings in QEP Resources Inc (NYSE:QEP) to over 13.54 million shares last week. This represents 7.6% of the company’s total outstanding shares, making the hedge fund the largest shareholder, based on publicly available filings. A few weeks prior to the disclosure, Jana Partners had sent a letter to QEP’s board, wherein it presented an action plan for the firm’s “chronic underperformance for shareholders.”

The action plan consists of three major points. First off, Jana Partners wants to add Board members and fill management positions with individuals with midstream experience. The second step consists of “separating QEP’s midstream business (“QEPFS”) to unlock its true value”. Finally, the hedge fund insists that shareholders must receive more significant returns on capital, indicating that this action could be funded by sales of non-core assets.

Barry Rosenstein JANA PARTNERS

Jana Partners does not appreciate management’s lack of effort to increase shareholder value. The hedge fund intends to influence the board to “evaluate the interest of several strategic and financial partners who have approached QEP regarding a transaction that would result in a separation of QEPFS.” In the letter to the Board, the hedge fund had few kind words for CEO Charles B. Stanley. According to Jana Partners, Stanley “is unwilling to accept that true value maximization requires the full implementation of this plan, most importantly the immediate separation of QEPFS.”  If the separation were to be achieved however, additional value would be added to Jana Partners’ investment, generating a very favorable outcome.

Although Barry Rosenstein’s Jana Partners is by far the largest QEP shareholder, other hedge funds are also bullish regarding the energy company. D E Shaw, which is managed by D. E. Shaw, holds over 1.13 million shares of common stock, representing  0.05% of its 13F portfolio. Other optimistic hedge funds include Steven Cohen’s SAC Capital Advisors, Daniel Lewis’s Orange Capital and Phill Gross and Robert Atchinson’s Adage Capital Management. These three investment firms hold smaller positions, although still significant with more than 750,000 shares each.

Jana Partners is a value-oriented investment firm. Founded by Barry Rosenstein in 2001, the hedge fund’s motto is “Ignore the crowd,” a statement the company’s management follows consistently. Barry Rosenstein is keen on putting his money behind businesses with enough funds to continue growing, as is the case with QEP.

Disclosure: none