In a new filing with the Securities and Exchange Commission, Starboard Value, an activist hedge fund managed by Jeffrey Smith, disclosed a letter sent to the board of LSB Industries, Inc.(NYSE:LXU), in which the investor, among other things, nominated a slate of five candidates to be elected to the company’s board of directors, including Mr. Smith. Starboard owns around 1.73 million shares of the company, the stake amassing 7.6% of the company’s stock. During the fourth quarter, the fund raised its exposure to the company by 130%, which represents one of the highest increases during the October-December period. In fact, the investor more than doubled its stake in only three companies, the other two being Family Dollar Stores, Inc. (NYSE:FDO) and Integrated Silicon Solution, Inc. (NASDAQ:ISSI).
Starboard also said in its letter that LSB Industries, Inc.(NYSE:LXU) is “deeply undervalued” and the company should take advantage of some opportunities in order to increase the shareholder value of the company. The fund also added that the company requires significant changes in its opertations, strategic directions management structure, and corporate governance. According to the letter, LSB Industries has some issues with its operating and financial performance and Starboard’s earlier attempts to address these issues have been ignored by the management and the board of directors. In April, 2014, Starboard and LSB Industries reached a settlement under the terms of which the investor appointed two directors to the board, although the issues outlined by the investor have not been addressed.
The investor also outlined the financial underperformance of LSB Industries, Inc.(NYSE:LXU), which missed most of its quarterly earnings estimates since the third quarter of 2012. Obviously each financial report sent the stock down and Starboard stated the stock lost a cumulative 32% during each day of earnings reports. Moreover, the operating performance is a result of the company’s poor corporate governance, which mainly results from the company being run as a family-owned business, despite the fact that the company went public over 30 years ago. In order to address the issue with corporate governance, which will also led to other changes, Starboard nominated five candidates to be elected at LSB Industries’ 2015 Annual Meeting: Peter Feld, Louis Massimo, Andrew Mittag, Jeffrey Smith, and Lynne White.
The full text of Starboard’s letter can be accessed below:
Starboard Letter to LSB Industries
Among over 700 funds that we track, only 12 investors disclosed long positions in LSB Industries, Inc.(NYSE:LXU), with Starboard being the largest shareholder, followed by Jeffrey Gendell’s Tontine Asset Management and Martin Whitman’s Third Avenue Management, which own 716,100 shares and 264,700 shares respectively.
As it has been mentioned earlier, two other companies in which Mr. Smith more than doubled Starboard’s stake during the fourth quarter are Family Dollar Stores, Inc. (NYSE:FDO) and Integrated Silicon Solution, Inc. (NASDAQ:ISSI). Even though the value of both positions is not even close to the largest holdings, both companies are still worth looking into.
In Family Dollar Stores, Inc. (NYSE:FDO), Starboard doubled its stake to 600,000 shares, valued at $47.53 million as of the end of 2014. The investor initiated a stake with 700,000 shares during the second quarter as the company has been in talks regarding a potential takeover from Dollar Tree, Inc. (NASDAQ:DLTR). Later on, as the deal stalled after a new offer from Dollar General Corp. (NYSE:DG), Starboard cut its stake to 300,000 shares (held as of the end of September). However, in January, shareholders of Family Dollar Stores, Inc. (NYSE:FDO) voted in favor of the merger with Dollar Tree, the value of the deal amounting to $8.50 billion. Family Dollar Stores, Inc. (NYSE:FDO) was put for sale after pressure from investors, including Carl Icahn who initiated a 10% stake in June and said that the company should merge with Dollar General. However, as the company entered into an agreement to merge with Dollar Tree, Mr. Icahn sold the largest part of his stake at a significant profit (around $150 million). The largest shareholder of Family Dollar among institutional investors is Nelson Peltz’s Trian Partners, which owns 8.37 million shares as of the end of 2014.
However, more interesting is the case of Integrated Silicon Solution, Inc. (NASDAQ:ISSI), since Starboard holds an activist stake in the company. In its latest 13F, the fund reported holding around 2.40 million shares, up by 182% on the quarter, valued at $39.75 million. Soon after initiating a stake, Starboard formed an activist group with Oliver Press and disclosed the intention of nominating a candidate to be elected to Integrated Silicon Solution, Inc. (NASDAQ:ISSI)’s board of directors. In December, the stockholder group disclosed a letter sent to Integrated Silicon Solution’s CEO Scott Howarth, in which they outlined that the stock is undervalued in relation to its peers and expressed their intention to nominate several candidates to be elected to the board of directors at the next annual meeting. Since Mr. Smith went activist on the producer of semiconductors for the autmotive and industrial markets the stock of the company gained over 10%. Among the funds that we track, aside from Starboard, the only fund that owns a notable position in Integrated Silicon Solution, Inc. (NASDAQ:ISSI) is Chuck Royce’s Royce & Associates with nearly 2.50 million shares.
Disclosure: none
