Starboard Sets Out to Remove Yahoo! Inc. (YHOO)’s Entire Board, ValueAct Further Trims Adobe Stake, Plus 2 Other Moves

According to fresh data from Hedge Fund Research, the activist hedge fund industry lost 6.52% in the first two months of this year, versus the decline of 2% for the average hedge fund. However, shareholder activism is a rather long term-oriented strategy, so the performance of this group of investment vehicles will most likely improve in the quarters and years ahead. There is a group of individuals who are blaming activist hedge funds for hijacking the U.S economy through targeting short-term profits at the expense of employees and taxpayers. Nonetheless, shareholder activism seems to have evolved quite significantly in the past several years, as the outdated play book of pushing for share buybacks or sales does not create much long-term value. As revealed by Activist Insight, a total of 551 companies received public demands by activist investors in 2015, with only 12% of those demands being related to share buybacks, sales, or real estate spin-offs. The following article will discuss three separate SEC filings submitted by several widely-known activist firms, including the ones run by Bill Ackman and Jeffrey Ubben, as well as discuss an intensifying activist campaign that is making headlines.

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According to a freshly-amended 13D filing with the SEC, Bill Ackman’s Pershing Square Capital Management L.P. has entered into an information sharing agreement with Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) following Mr. Ackman’s appointment to the company’s Board of Directors on March 21. The activist investment firm currently owns 30.71 million shares of Valeant Pharmaceuticals, which account for 9.0% of the company’s outstanding common stock. This stake consists of 21.59 million shares of common stock and 9.12 million shares of common stock underlying over-the-counter American-style call options. The information sharing agreement written on behalf of Mr. Ackman says: “I hereby undertake, consistent with my fiduciary duties and confidentiality obligations as a Valeant director, to refrain from communicating to anyone (whether to any company in which we have an investment or otherwise) confidential information I learn in my capacity as a director of Valeant”, so long as Bill Ackman can discuss such information with members of his firm and other parties as strictly related to the firm’s investment in Valeant. According to the freshly-inked agreement, Pershing Square will not purchase or sell any shares of Valeant during the company’s existent and unscheduled blackout periods. Of course, the aforementioned agreement may seem to be a simple formality, but it is highly important when it comes to regulatory issues and confidentiality. The most important question most investors may have at the moment is whether the “ex-successful” activist investor will be successful in turning around the troubled drug company.

Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)’s shares have been on a slide since the middle of 2015, mainly due to allegations of accounting fraud from short sellers, increased political attention on drug pricing and the termination of an important distribution arrangement. The company’s shares took another hit recently after the drug company said that it might face a possible default if it does not file its financial statements on time. Earlier this week, the company announced that its current Chief Executive Officer, Michael Pearson, would step down from his role when a suitable substitute is found. Shares of Valeant are down by 68% since the beginning of 2016. There were 82 hedge funds in our system with stakes in Valeant at the end of 2015, accumulating 36.20% of the company’s total shares. John Paulson’s Paulson & Co. reported owning 13.27 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) through the latest round of 13F filings.

The next two pages of this article discuss three more breaking developments concerning funds tracked by Insider Monkey.

In a Form 4 filing, Jeffrey Ubben’s ValueAct Capital reported selling 2.11 million shares of Adobe Systems Incorporated (NASDAQ:ADBE) during the first three trading sessions of this week, at a weighted average price of $92.78. Following the recent sales, the friendly activist hedge fund continues to hold a stake of 9.66 million shares in the diversified software giant. The activist firm acquired a stake in Adobe Systems at the end of 2011, after which the firm reportedly argued for a subscription-based pricing model that would lower entry barriers for new customers. According to a 2013 letter to investors, the investment firm “saw a company completely embedded in its users’ workflow, with real and increasing innovation and potential to monetize that innovation through subscription-based pricing”, while most investors believed Adobe “was just a stock to be trading in and out of around product cycles”. Mr. Ubben and his team were able to fully comprehend the company’s underlying potential, which involved monetizing Adobe’s innovative solutions through subscription-based pricing, for which they have been rewarded with extremely high returns given that the stock is up by 170% in the past five years. Although Adobe Systems Incorporated (NASDAQ:ADBE) has been witnessing its long-term shareholder, as well as corporate insiders, cash out portions of their holdings in recent months, analysts at Pacific Crest Securities believe that the shares of the software company have more room to run. Pacific Crest Securities, which has a price target of $110 on Adobe and an “Overweight” rating, suggests that new product offerings and partnerships will keep driving sustained growth and market-share gains. The smart money sentiment towards Adobe increased in the October-to-December period, with the number of hedgies invested in the highly-successful company increasing to 46 from 42 quarter-over-quarter. Ken Griffin’s Citadel Advisors LLC upped its stake in Adobe Systems Incorporated (NASDAQ:ADBE) by 16% during the December quarter, ending 2015 with 3.72 million shares.

As revealed by a Form 4 filing with the SEC, J. Carlo Cannell’s Cannell Capital LLC sold 721,096 shares of North American Energy Partners Inc. (USA) (NYSE:NOA) on Monday at a price of $1.97 per share. After the recent sizable sale, the investment firm holds a stake of 2.89 million shares, which constitute 8.72% of the company’s shares. North American Energy Partners is a provider of mining and heavy construction services to customers in the resource development and industrial construction sectors, mainly within Western Canada. North American Energy Partners Inc. (USA) (NYSE:NOA)’s primary market represents the Canadian oil sands, where the company offers construction and operations support services in all stages of an oil sands project’s lifecycle. The depressed crude oil prices throughout 2015 forced the company’s customers to adjust to the worsening market conditions through investment delays in growth capital projects and aggressive operating cost reduction efforts. North American Energy Partners generated revenue of $281.28 million during 2015, significantly down from $471.78 million reported for 2014. Given the company’s strong balance sheet, its management plans on seeking out acquisitions to enhance its core business, as well as diversify its revenue streams. The company reduced its total debt to $110.9 million from $128.3 million during 2015, ending the year with cash on hand amounting to $32.4 million. Shares of North American Energy Partners are down by 35% in the past year, but have gained 13% year-to-date. Seven hedge funds tracked by Insider Monkey had long positions in the company at the end of December, accumulating approximately 28% of its outstanding common stock. Andrew Weiss’ Weiss Asset Management owns 3.01 million shares of North American Energy Partners Inc. (USA) (NYSE:NOA) as of December 31.

Although there are no SEC filings yet related to our next topic of discussion, we decided to examine the activist campaign pursued by Jeffrey Smith’s Starboard Value LP against Yahoo! Inc. (NASDAQ:YHOO). This morning, the activist hedge fund announced the nomination of a slate of nine candidates for election to the company’s Board of Directors at its upcoming annual meeting of stockholders, thus lunching a proxy fight to remove the entire Board of the struggling company. The battered digital media company has faced pressure from Starboard Value to sell its core Search and Display advertising businesses, but the company’s Board is still exploring strategic alternatives alongside plans to undergo a reverse spin-off. Starboard Value also sent an open letter to Yahoo! shareholders, saying that “There are reasons for shareholders to be highly concerned about the current strategic review process. Despite what appears to be strong interest from large strategic and financial buyers, as referenced in the media, nearly two months have gone by since Yahoo officially publicly announced its intention to pursue strategic alternatives for the Core Business, and it seems little progress has been made.” Yahoo! Inc. (NASDAQ:YHOO) quickly responded to Starboard’s announcement, saying that the Board’s Nominating and Governance Committee will review the proposed nominees. Mr. Smith’s activist firm owns 7.10 million shares of Yahoo! as of December 31. Christian Leone’s Luxor Capital Group had 11.46 million shares of Yahoo! Inc. (NASDAQ:YHOO) in its portfolio at the end of 2015.

Disclosure: None