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The Morning Brief: Trian Takes Big Stake in GE

Nelson Peltz’s Trian Fund Management has moved on to its biggest target ever. The New York-based activist hedge fund firm said it owns 3.5 percent of the shares of General Electric, worth about $2.5 billion. This makes the firm one of the top-ten investors in the conglomerate. In its announcement, Trian asserts it believes the stock could be worth $40 to $45 per share, including dividends, by the end of 2017 if GE achieves “modest operating margin improvement,” efficiently uses its balance sheet and is disciplined with capital. This compares with its Friday closing price of $25.47 and its Monday closing price of $26.82, up 5.30 percent on the day.

Trian also says it has spoken with management since 2013. However, so far it did not propose a board seat, as is the usual custom among activist funds, including Trian. “Over the past several months, Trian has conducted investment due diligence, including on-site visits and meetings with leaders of various GE business units,” it states in its announcement.

Trian simultaneously filed an amended 13F with regulators on Monday disclosing that it owned more than $1.3 billion worth of GE stock at the end of the second quarter, the latest example of an activist firm carefully avoiding telegraphing its next move. When Trian initially filed this quarterly report on August 14, it did not disclose any investment in GE. The position would have been Trian’s fourth-largest holding at the time.

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Shares of The Brink’s Company surged 4.54 percent on Monday after Jeffrey Smith’s Starboard Value disclosed late Friday that it raised its stake in the security company — which Starboard describes as a cash logistics company — to 9.4 percent from 9 percent back in July. After the close Monday, Starboard published a letter it had sent to the company and its top management calling on it to pursue “a strategic combination” with another global cash logistics company even while the board works on ways to improve the company and its finances. “Brink’s has a strong brand presence, extremely valuable assets, and a rich history,” Smith writes in the letter. “Unfortunately, shareholders have suffered through many years of missed expectations and dismal financial results.”

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The Supreme Court refused to hear a Federal appeals court decision late last year that vacated the insider trading convictions of two prominent hedge fund managers, Todd Newman and Anthony Chiasson, according to published reports. The High Court did not offer any further comment on its decision.

This could change the landscape for bringing insider trading cases, which could also be a blow to U.S. Attorney Preet Bharara and his legacy for supposedly reining in insider trading. The appeals court had ruled that the jury was given improper instructions. It had explained that Newman and Chiasson were unaware of the sources of the insider trading information and that it was not apparent that these sources revealed the sensitive information for personal gain. The ruling, issued by the Second U.S. Circuit Court of Appeals, said that for people to be convicted of trading on inside information, they must know not only that the providers of the information gave it illegally but that they received it in exchange for some benefit — and not just that it was disclosed in breach of fiduciary duty, as the appeals panel says the jurors were erroneously informed.

In a statement, Chiasson’s attorney says: “Mr. Chiasson is deeply gratified by this complete vindication, one that ends the five year ordeal he and his family endured. At the same time, he notes with profound indignation that dozens of his outstanding colleagues lost livelihoods at his thriving fund, which became the collateral damage of this ill-conceived prosecution.”

Newman is a former Diamondback Capital Management portfolio manager. He was sentenced to 54 months in prison after being convicted of one count of conspiracy to commit securities fraud and four counts of securities fraud. Chiasson, co-founder of Level Global Investors, was sentenced to six and a half years in prison after he was convicted of one count of conspiracy to commit securities fraud and five counts of securities fraud.

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Hedge fund MeehanCombs is closing down after posting large losses from trading junk bonds, according to the Wall Street Journal. The fund is returning most of its investors’ assets after declining 7 percent this year and losing 6 percent in 2014, according to the report. 
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Monday was a great day for the stock market -- except for Valeant Pharmaceuticals International, which fell 10.34 percent and is now down to $163.46. It was trading about 100 points higher as recently as early August.

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