Jeffrey Smith‘s Starboard Value has published its 13F filing with the Securities and Exchange Commission, disclosing its equity portfolio for the end of the third quarter of 2014. Starboard is a fundamental-oriented activist hedge fund with an equity portfolio valued at $2.87 billion, up from $2.55 billion a quarter ago. The fund has not made any significant changes to the top holdings, except for the addition of a position in Yahoo! Inc. (NASDAQ:YHOO), which is not the third largest stake in terms of value. We are going to discuss the top three new positions in Starboard’s equity portfolio, which, aside from Yahoo, are also represented by AOL, Inc. (NYSE:AOL) and Energizer Holdings, Inc. (NYSE:ENR).
Mr. Smith has conducted several proxy fights that made a lot of noise on the street. He has finally managed to replace the entire board of Darden Restaurants, Inc. (NYSE:DRI), after months of letters, discussions and proposals to increase the comapany’s shareholder value. Darden currently represents the largest position in Starboard’s equity portfolio. The fund owns 11.63 million shares of the company, valued at $598.74 million, equal to over 20% of the total portfolio value. Moreover, currently, the investor tries to acquire and take private RealD (NYSE:RLD), considering that shareholders will gain from this transaction.
Starboard Bets on Yahoo – AOL Merger
The first two-largest new positions in Staboard Value’s equity portfolio are represented by Yahoo! Inc. (NASDAQ:YHOO) and AOL, Inc. (NYSE:AOL). This is an interesting play, taking into consideration that Starboard has suggested a merger between two companies in a letter to Yahoo’s CEO Marissa Mayer at the end of September. However, when the letter was sent, the fund has not revealed how many shares of Yahoo or AOL, Inc. (NYSE:AOL) it owns. The 13F filing showed that Starboard holds 7.72 million shares of Yahoo, which represent 0.81% of the company’s outstanding stock. The position is worth $314.77 million and amasses almost 11% of the equity portfolio. In AOL, the investor owns 1.92 million shares, valued at $86.21 million, equal to 3% of the portfolio.
Yahoo! Inc. (NASDAQ:YHOO) has sparked the interest of investors in the last several months, mainly because of its huge equity positions in Yahoo Japan and Alibaba Group Holding Ltd (NYSE:BABA) that went public earlier this year. Investors opt and push towards a tax efficient allocation of the money from this stakes. In the letter, Starboard also said that CEO Mayer needs to find a way to return this cash to shareholders in a cash-efficient manner, such as a spin-off. With activist investors stepping up, passive stakeholders are also bullish on the company. Passport Capital’s John Burbank said in an interview that Yahoo! Inc. (NASDAQ:YHOO) will either find an efficient way to use additional cash that it got, or investors will find the right solution, so in any way Yahoo will gain value.
However, even though Starboard also asked Mrs. Mayer to cease the acquisitions and instead focus on a potential merger with AOL, Inc. (NYSE:AOL), she did not follow the advice and Yahoo has recently purchased BrightRoll, which is supposed to help Yahoo! Inc. (NASDAQ:YHOO) with its struggling core business. This move was not positively seen by some investors, and according to some sources, some shareholders might even consider replacing Mrs. Mayer, with AOL, Inc. (NYSE:AOL)’s CEO Tim Armstrong.
Aside from sending a letter, Jeff Smith also pitched Yahoo during Sohn Canada conference. Aside from Starboard, another shareholder of Yahoo is David E. Shaw‘s D.E. Shaw, which owns 19.57 million shares as of the end of the third quarter.
Starboard’s New Electrical Equipment Play
Energizer Holdings, Inc. (NYSE:ENR) represents the third-largest holding in terms of value in Starboard’s equity portfolio. The fund reported holding 375,000 shares, valued at $46.20 million. Energizer is a $7.80 billion producer and seller of batteries, portable lighting and products from the personal care category.
Energizer Holdings, Inc. (NYSE:ENR)’s stock appreciated by 16% since the beginning of the year, and trades at 22 times earnings, slightly above the industry average. The stock appreciated on Thursday after Warren Buffett’s Berkshire Hathaway announced that it has agreed to purchase Energizer’s main rival, Duracell from Procter & Gamble Co (NYSE:PG) for $4.7 billion. In this way, it could be that Energizer Holdings, Inc. (NYSE:ENR) might also be a target for a private takeover, and Starboard could’ve been betting on such a possibility.
Another shareholder of Energizer Holdings, Inc. (NYSE:ENR) is Mario Gabelli’s GAMCO Investors, which owns 1.20 million shares as of the end of September, up by some 86,900 shares over the quarter.
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