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The Morning Brief: Starboard Raises Stake in Drugmaker Perrigo
Jeffrey Smith’s Starboard Value has turned up the heat on Perrigo Co. The New York activist hedge fund firm just raised its stake in the Ireland-based drugmaker to 8.96 million shares, or 6.2 percent of the total outstanding. In mid-September, Starboard disclosed a 4.6 percent position and called on the company to make changes to “reverse the trajectory of poor operating and financial performance.”
In Tuesday’s regulatory filing, the firm repeated its belief that Perrigo’s stock is undervalued but once again had offered no plan for boosting the price. In response to Starboard’s letter to the company in September, Perrigo said in a statement that it will carefully review the document “and looks forward to a constructive and productive dialogue with Starboard — as we do with all of our shareholders — while we execute on a number of strategic and operational initiatives.” The company added that it “reiterates its commitment to disciplined execution; transparency with its shareholders, customers, and employees; and, above all, to delivering value for its shareholders.”
Elliott Management Corp. has boosted its stake in Arconic to 10 percent. Last week the New York activist hedge fund headed by Paul Singer lifted its position in the maker of metal goods, a spin-off of metals and manufacturing giant Alcoa, to 9 percent. Elliott has yet to offer any plan for boosting the stock price.
Hedge fund firm Eminence Capital led the $42.5 million Series E funding for xAd, a marketing company that specializes in so-called location intelligence designed to drive sales. On November 15, xAd also simultaneously announced the acquisition of WeatherBug, a division of weather services operator Earth Networks. In a press release, the company asserted that it is “connecting the power of location technology with the most accurate weather data.” Interestingly, xAd also pointed out that checking the weather is one of the top three most popular activities on U.S. smartphones, according to research firm eMarketer.
Deutsche Bank has raised its price target for hedge fund favorite Advance Auto Parts from $175 to $185, calling the company “a long term thesis predicted on higher margins and earnings through a turnaround that could take years.” More than a year ago Starboard Value, not the automotive parts and service provider’s fourth-biggest investor, identified it as an activist target. Advance Auto was the hedge fund firm’s No. 5 large U.S. long at the end of the third quarter. The stock is also the second-biggest U.S. long of Ivory Investment Management, the fourth-largest position for Marble Arch Investments and Pagoda Asset Management, and the No. 7 holding of Marshall Wace.
Here’s more evidence that hedge funds are under heavy pressure from investors. The average expense ratio has declined from 1.95 percent in 2015 to 1.84 percent this year, according to a new annual hedge fund and investor survey from consulting giant EY, which notes that investors keep applying pressure on fees. EY says declines in management fees are driving this trend: The average reported management fee has dropped to 1.35 percent, from 1.45 percent in 2015.
Despite lower fees, the survey found that just 20 percent of investors are satisfied with their funds’ expense ratios. The EY poll also revealed that nearly half of investors expect their hedge fund investments to move to other alternative assets over the next three to five years. Also, 42 percent of investors expect to shift from commingled hedge funds to customized vehicles and segregated accounts.