Why Is Activist Carlo Cannell So Bullish On ValueVision Media?

Last week, Carlo Cannell and his hedge fund, Cannell Capital, entered into an agreement with Clinton Group, a firm known for its activism, and several other parties, regarding ValueVision Media Inc (NASDAQ:VVTV). According to the arrangement, the investors have agreed to consult with each other before buying or selling the company’s stock.

Cannell Capital has also disclosed recently that it holds about 5.54 million ValueVision Media shares, part of which may be considered to be indirectly (beneficially) owned by Clinton Group and George E. Hall. In addition, the group declared holding 982,300 shares in form of derivative securities.

Carlo Cannell

The activist group formed by Cannell Capital, Clinton Group and other participants also divulged a letter sent to Keith R. Stewart, Chief Executive Officer of ValueVision, in which they demanded a special company shareholders’ meeting. They intend “to elect new directors who will install a senior management team that will harness the power of ValueVision’s tremendous assets.” You can check out the letter, here or find a few highlights, here.

In response, Randy S. Ronning, the chairman of ValueVision, asked the funds to wait until after the holidays for the company to make some changes, so that it can now remain focused on the holiday season. However, Mr. Ronning showed himself quite receptive to the group’s demands.

Following the ownership report, Cannell Capital stands as the largest known hedge fund bull at ValueVision, closely followed by Par Capital Management, which owns more than 4.7 million shares. The fund’s holdings at the company are now worth about $208 million, representing its largest known holding, by a wide margin. Other “hedgies” that are bullish on the stock are Phil Frohlich’s Prescott Group Capital Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

However, many of the hedge funds we track have been quite bearish about ValueVision Media lately, and have sold off their entire holdings during the last few months. This was the case of J. Alan Reid, Jr.’s Forward Management, and Ken Gray and Steve Walsh’s Bryn Mawr Capital.

Despite other hedge funds’ decisions, the bet on ValueVision Media fits Cannell Capital’s wider strategy of investing in domestic small-cap companies. By focusing on value-oriented, bottom-up or fundamental investments, it has managed to return substantial amounts of money to investors. For instance, in 2004, when funds bulked up to $765 million, it returned 15% of the capital to its investors.

ValueVision is a multichannel electronic retailer that enables customers to shop and interact via TV, phone, Internet, mobile and social media. With roughly $265 million in market capitalization and about 1,000 employees, this specialty retailer fits Cannell Capital’s equity portfolio perfectly.

Apparently, the group is betting on growth, as analyst consensuses point toward above average EPS growth for the next 5 years to come. In fact, they expect ValueVision Media to outperform its industry peers by about 20%, delivering average annual EPS growth rates around 20%.

Disclosure: none