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The Morning Brief: Jana Partners Takes New Activist Stake

Jana Partners has initiated a new activist position. The hedge fund firm headed by Barry Rosenstein disclosed in a regulatory filing it owns 16.25 million shares of HD Supply Holdings, a distributor of industrial products. That’s 8.1 percent of the total outstanding and more than five times the number of shares Jana owned in the at the end of the second quarter. Most of the recent purchases took place after September 2, at prices mostly in the low $30s.

In Thursday’s 13D filing, Jana says the stock is undervalued and is a good investment. It also says it has already held discussion with management regarding strategic alternatives and financial and operational ways to boost the stock price. Using typical boiler-plate language, Jana ostensibly threatened to take further unspecified actions in the future to exert further pressure on the company. At the end of the second quarter, Tiger Cub Blue Ridge Capital was the third-largest shareholder in HD Supply, with more than 4 percent of the shares. Shares of HD Supply closed up 2 percent at $32.93. The stock is up 50 percent from its early February low.

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Two Internet companies whose stocks are among the most popular among hedge funds are poised to move in opposite directions on Friday after reporting quarterly results after the closing bell on Thursday.

Shares of Amazon.com fell between 4 percent and 5 percent in after-hours trading after the company reported quarterly earnings that came in short of expectations. At the end of the second quarter, it was the second-most-popular stock among hedge funds, with at least 160 holders. They include at least 20 hedge funds with roots in Julian Robertson Jr.’s Tiger Management, according to Novus.com.

On the other hand, both classes of Alphabet, the parent of Google, rose about 1.5 percent in after-hours trading after the search giant reported quarterly earnings that beat Wall Street forecasts. Alphabet’s board also authorized $7 billion for stock buybacks. At the end of the second quarter, both classes of Alphabet ranked among the 10 most popular hedge funds stocks, including the Tiger funds.

In fact, at the end of the third quarter, Amazon and Alphabet were the two largest long holdings of O. Andreas Halvorsen’s Viking Global Investors.

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Good news for activist investors. The Securities and Exchange Commission proposed a change to the proxy rules that will require the use of just one proxy card containing all board nominees in contested elections. In other words, all management and dissident director nominees will be included on one proxy card instead of two, which has been confusing to investors and costly for the dissident investor.

“The proposed changes would allow shareholders to vote by proxy in a manner that more closely replicates how they can vote in person at a shareholder meeting,” said SEC Chair Mary Jo White, in a press release. “This change would allow shareholders through the proxy process to more fully exercise their vote for the director nominees they prefer.”

The proposed rules also would require management and dissidents to provide each other with the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.

“I applaud the SEC for voting to propose amendments to the outmoded proxy rules to require the use of universal proxy cards,” said Carl Icahn in a statement, noting the universal proxy card “eliminates needless voter confusion in contested elections, give shareholders greater freedom of choice, and hopefully end some of the gamesmanship employed by incumbent boards to keep shareholder-nominated directors out of the boardroom.”

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