The Morning Brief: Jana Targets Petsmart

Thursday was a busy day for the activists.

Barry Rosenstein’s Jana Partners identified a new activist target: Petsmart. The New York–based activist hedge fund firm on Thursday disclosed it owns 9.9 percent of the pet supply retail chain. In a 13D filing, Jana used typical activist jargon, saying the shares are undervalued and represent an attractive investment opportunity and that it plans to hold discussions with the board of directors and management. Among the likely targets: The possible sale of the company, improving operating performance and the company’s capital structure, including “providing for a significant return of capital to shareholders.” In other words, a big one-time dividend, a favorite tactic of Jana and other activists. The stock surged more than 12 percent Thursday, to close at $67.28.

Casablanca Capital fired off a press release taking issue with a press release issued the previous day by Cliffs Natural Resources. On Wednesday, Cliffs, a mining and natural resources company, said it offered to settle its proxy fight with the New York hedge fund firm headed by Donald Drapkin, offering Casablanca three seats on a reconstituted Cliffs board consisting of nine directors.

“This settlement offer, similar to the offer previously proposed by Cliffs, would provide Casablanca with significant representation on Cliffs’ board,” Cliffs said in its press release. Cliffs also noted that it previously said, two current Cliffs’ directors would not stand for re-election at the annual meeting. “The company strongly believes this settlement offer would provide a board composition with the independent and forward-looking perspective needed to continue to drive change at Cliffs and enable the company to resolve the costly and distracting proxy contest that was initiated by Casablanca,” it added in its press release. It also said that regardless of whether there is a settlement, the new board will elect a new chairman.

In response, Casablanca, which owns 5.2 percent of Cliffs, called the press release “another public relations ruse” and “not a genuine attempt to reach a settlement,” adding that it will not negotiate through press releases.

Wausau Paper has agreed to appoint Gavin Molinelli, a partner at Starboard Value, to its board as part of a compromise agreement with the New York–based activist hedge fund firm. Since April 22, Molinelli had been an observer to the Wausau board. Starboard, headed by Jeffrey Smith, owns about 15.1 percent of Wausau’s stock.

William Ackman’s Pershing Square Capital Management continues to be one of the top performing hedge funds this year. The New York–based activist hedge fund firm posted a 2.4 percent gain in June, beating the S&P 500, and is now up 25 percent for the year, according to a report in the Wall Street Journal.

The AlphaClone Hedge Fund L/S Index is up 5.03 percent so far this year through the first six months. This compares with a 7.1 percent gain for the S&P 500 Index during the same period. The index contains the U.S. stocks most favored by institutions and hedge funds.