SPX Corporation (SPW), Esterline Technologies Corporation (ESL): Activist Hedge Fund Relational Investor’s Latest Moves

Ralph V. Whitworth‘s Relational Investors continues its streak of trimming its activist stake in  SPX Corporation (NYSE:SPW), as the fund cut its stake by approximately 740,000 shares down to about 4.29 million shares, according to a recent filing with the Securities and Exchange Commission. Meanwhile, the fund also issued a filing to inform about the resignation of Mr. Henry W. (Jay) Winship, a principal of Relational Investors LLC on 11th March, from Esterline Technologies Corporation (NYSE:ESL)‘s board. Whitworth’s fund holds 2.48 million shares of Esterline valued at $271.85 million, as of the latest 13F filing.
 Ralph V. WhitworthRalph Whitworth is a well-known activist investor, who after acquiring a significant stake in the troubled companies jumps on their board. Rather than proxy fights he is more interested in engaging the board and management and resolve incompetencies surrounding their corporate governance. Backed by sound research, he will highlight the troubled spots of a company, but his refined style doesn’t entail arguing about strategy, or business plans. However, he will publicly hold the board and the CEO accountable for poor decisions including corporate compensation, acquisitions or corporate misconduct. Whitworth has now been battling throat cancer, and has taken a leave of absence while his fund continues to unwind some of his holdings, while not initiating any new positions. News about the fund’s dissolution plans also surfaced in November last year. The market value of Relational’s portfolio stood at $2.78 billion at the end of the fourth quarter, as compared to $4.06 billion a quarter earlier. With top 10 holdings constituting 98.97% of the portfolio value, the fund is not very big on diversity. Relational’s top two holdings remain Mondelez International Inc (NASDAQ:MDLZ) and Bunge Ltd (NYSE:BG).
If an investor wholeheartedly believes in the capabilities of money managers like Whitworth, they might follow his picks as he submits filings after acquiring a significant stake in companies. However, generally following the most popular stocks among hedge funds isn’t the most rewarding strategy. The reason being that the real edge that hedge funds have isn’t in picking large-cap stocks, but the small cap companies. We have been sharing these picks since August 2012 in our newsletter, and they have significantly outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 ETF (SPY) by a staggering 76.7 percentage points since August 2012 through March 2015 and returned 132%.
Mondelez International Inc (NASDAQ:MDLZ) is Relational’s largest holding with about 12.47 million shares valued at $452.90 million, comprising of 16.29% of the fund’s portfolio value as of the latest 13F filing. Although the number of hedge funds invested in the company declined to 63 in the fourth quarter from 69 a quarter earlier, the aggregate amount invested increased to $6.75 billion from $6.47 billion. Nelson Peltz’s Trian partners held some 46.30 million shares valued at $1.68 million. Mondelez International Inc (NASDAQ:MDLZ) is trading almost the same level as a year ago.
With 4.95 million shares valued at $449.7 million Bunge Ltd (NYSE:BG) comprised 16.17% of Relational’s portfolio value and was the second largest holding at the end of 2014. Clint Carlson’s Carlson Capital reduced its stake in the  agribusiness and food company by 29% to 1.22 million shares valued at $110.67 million during the fourth quarter. Bunge Ltd (NYSE:BG)’s  posted lackluster fourth quarter financial results with an EPS of  $1.2 missing the estimates by $1.31 and $13.9 billion revenues coming in $2.82 billion lighter than expected. Voaltility in the company’s oilseed businesses removed gains from bumber U.S. corn and soybean crops.