The folks at Starboard Value may not have the household name
activist investors like Carl Icahn
Third Points Dan Loeb. But those
occupying the executive suites of the companies
Starboard has targeted know these guys mean business.
The latest example is Wausau Paper, known for its specialty
paper, towel, tissue, soap and dispensing products. The company
recently agreed to nominate two directors with expertise in the
tissue and paper industry recommended by Starboard. Wausau also
agreed to create a committee made up of the two Starboard
nominees and any other two board members that would advise the
board on operations, investments and capital spending.
Wausau had known for some time that the hedge fund, which
now owns 9.7 percent of the shares, was unhappy with the way
the company was being run. Last October Starboard expressed its
concern with the companys plan to take on debt to expand
its tissue operation, calling on the company to finance the
expansion by divesting certain noncore assets, including what
Starboard deemed to be the underperforming paper business,
timberlands and hydroelectric assets. This would allow Wausau
to unlock significant unrealized value for shareholders,
remove the drain of the losses in the paper business and at the
same time significantly reduce risk by allowing the issuer to
finance the tissue expansion project without taking on
additional debt, Starboard stated in a letter to
management at the time.
Sure enough, within two months Wausau agreed to sell its
premium print and color brands and the remaining timberland
holdings and to close a paper mill.
Wausaus actions in response to Starboards
activism were not an anomaly. In nearly 90 percent of the cases
where it filed a 13D and nominated directors except when
the company has sold itself during the process it wound
up putting one or more of its nominees on the board or reaching
a settlement with the company. Since 2004 Starboard has added
or replaced more than 80 corporate directors on more than 30
public company boards.
Starboard is the value and opportunity business of Ramius,
the alternative investment management firm that merged with
Cowen Group in June 2009. Ramius still owns a minority, passive
piece of Starboard, which is led by Jeff Smith, CEO and chief
investment officer; Mark Mitchell, portfolio manager and head
of risk management and trading; and Peter Feld, portfolio
manager and the head of research. Today Starboard manages close
to $700 million.
Back in October the hedge fund won a proxy fight with Regis
Corp., owner of the largest chain of hair salons, when
shareholders elected all three of Starboards director
nominees, including Smith.
Also in October, Starboard announced a settlement with
another holding, MIPS Technologies. Under the deal, the maker
of computer processors agreed to increase the size of the board
from seven to nine and nominate two Starboard recommended
directors. MIPS also agreed to create an independent advisory
committee of the board and to appoint at least one Starboard
individual to the committee. In return Starboard agreed to drop
its proxy fight as well as other demands.
In contrast, AOL seems unwilling at this point to buckle
under Starboards pressure. When the hedge fund announced
a 4.5 percent stake in the once high-flying internet company
back in December and urged the board to take immediate action
to address significant concerns highlighted in an eight-page
letter, the company aggressively dismissed the activist.
AOL issued a statement asserting that over the past two
years it had significantly reduced costs, sold noncore assets,
made significant investments and repurchased over 10 percent of
its stock. AOL has a clear strategy and operational plan
to provide our consumers and customers with exceptional value,
which we believe will lead to the creation of shareholder
value, it added in the statement.
But in light of Starboards track record, it would not
be surprising if AOL agreed to some sort of compromise
settlement with the firm as well.