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The Morning Brief: Jana Targets ConAgra; Wall Street Views Differ

Shares of ConAgra Foods surged nearly 11 percent to $43.37 after Barry Rosenstein’s Jana Partners stated in a regulatory filing late Thursday that the New York hedge fund owned 7.2 percent of the shares, including options. In the filing, Jana also said it is prepared to nominate three individuals to ConAgra’s board, including Rosenstein. Jana asserted that the shares are undervalued and the company “has significantly underperformed in shareholder value creation.” It mostly blamed the company’s acquisition of private label giant Ralcorp in January 2013, noting its “disappointing performance,” as well as “repeated guidance misses, negative revisions to long-term earnings targets, no dividend-per-share growth, and operating performance challenges.” Jana said it began buying the shares after ConAgra took a $1.3 billion impairment charge on March 26. “Jana believes that in the period since the Ralcorp acquisition, the board has failed to adequately address the shareholder value destruction and persistent underperformance that followed the Ralcorp acquisition,” the hedge fund disclosed in the filing.

On Friday morning, several investment banks responded to Jana’s filing. Credit Suisse, for example, raised its price target from $34 to $42 “to reflect the likelihood that ConAgra will respond to Jana by accelerating its plans to enhance the business’ value by reducing costs and unlocking value in the portfolio by selling assets,” said the bank in a client note. Credit Suisse also raised its fiscal 2016 and 2017 estimates “in-line with consensus.” The bank also noted that Jana’s letter “strikes a constructive tone, not a hostile one,” and is not calling for a radical breakup of the company. Jana’s director slate includes experienced managers from the food industry: James Lawrence, formerly of General Mills and Unilever, and Brad Alford, formerly of Nestle.

Deutsche Bank, however, was less inclined to climb aboard. Noting Jana is likely to argue for a break-up, the investment bank told clients “it is clear that ConAgra’s direction is now in flux. Yet it isn’t clear to us the current board is ready for a break-up.” On the other hand, it argued that the company’s “[likely poor] fundamentals will be less influential on valuation” and the 3 percent dividend yield and relatively low price-to-earnings multiple provides support for the stock.

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There is clearly no shortage of people who want to own their own hedge fund. A total of 264 new funds were launched in the first quarter, the largest number in three quarters, according to a new report from HFR. Equity-oriented funded accounted for 142 of them, or 54 percent of the total. Even so, managers of new funds are being forced to charge lower fees than in the past and below existing funds. The average management fee for the funds launched in the first quarter was 1.52 percent, down 5 basis points from what new funds charged in 2014, while the average incentive fee was 17.04 percent, down 31 basis points from the 17.35 percent average incentive fee of 2014 launches. This compares with a management fee of 1.54 percent for all funds and an average incentive fee of 17.73 percent industry-wide.

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Four individuals are leaving Jack Meyer’s Convexity Capital Management, according to Bloomberg. They include Scott Carson, a senior money manager, John Downing and Frank Prisco, who are joining a new investment firm with Sol Roth, who left the Boston-based fund in 2008. Meanwhile, Jason Hotra is leaving for the fixed-income group at Grantham, Mayo, Van Otterloo & Co., according to Bloomberg, citing a Convexity client letter.

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Omega Advisors’ Leon Cooperman said in a regulatory filing that as of June 5, he had liquidated his entire stake in Caesars Entertainment Corp. At the end of the first quarter, the New York hedge fund firm owned more than 7.3 million shares of the casino company worth more than $77 million at the time.

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