Although Marcato Capital is a relatively new hedge fund, having been established in 2010, it has risen to prominence in the world of activist investment. Before starting the fund, Richard McGuire worked as a partner at Bill Ackman’s Pershing Square, some saying that McGuire is Ackman’s protégé. Marcato Capital is mostly an activist fund, holding a concentrated portfolio with only a handful stocks. We have analyzed the fund’s latest 13F filing and have identified several changes that could turn out to be activist targets or are activist plays in early stages.
Marcato Capital has significantly increased its holding of Rayonier Advanced Materials Inc (NYSE:RYAM) stock during the fourth quarter. According to the fund’s latest 13F filing, its stake in Rayonier Advanced Materials amounted to 1.55 million shares, up from 454,300 shares reported at the end of the 2017 third quarter. Marcato has not submitted a 13D filing yet, so we are not sure about the reasoning behind this move. Howard Marks, the manager of Oaktree Capital Management, is also bullish on the stock, having initiated a new position that also amounts to 1.55 million shares. Jim Simon’s Renaissance Technologies holds the largest stake in Rayonier Advanced Materials among the funds in our database, having reported ownership of 3.97 million shares. Rayonier Advanced Materials Inc (NYSE:RYAM) manufactures and sells cellulose products that are used in various industrial applications. The company was spun off from Rayonier Inc. (NYSE:RYN) in 2014. In November 2017, Rayonier Advanced Materials completed the acquisition of Canadian paper company Tembec Inc in a cash and stock deal worth $870 million.
So, why would Rayonier Advanced Materials Inc (NYSE:RYAM) be a target for activist investors? Let’s have a look the company’s financial track record. Revenues have been falling for the past five years. Whereas Rayonier Advanced Materials reported revenues of $1.09 billion in 2012, by 2016 revenues fell to $869 million. Although management has taken steps to cut costs, they were not very successful. For the first three months of 2017, the company reported cumulative Operating Expenses of $44 million which is equal to the amount reported for the entire 2016. Margins have been declining as well, while asset turnover fell by nearly 50%. Also, Rayonier Advanced Materials missed earnings estimates for three out of the past four quarter and managed to meet expectations in the fourth.
Is there a light at the end of the tunnel? The acquisition of Tembec is expected to double the company’s revenue, diversify the company’s product offering and presents an opportunity to expand into adjacent businesses. Rayonier Advanced Materials is scheduled to release fourth quarter results on February 20 and investors will manage to gain some insight into how productive this acquisition has proven so far.