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The Morning Brief: Activist Sachem Head Takes Stake in CDK Global

Activist hedge fund firm Sachem Head Capital Management has taken a 7.88 percent stake in CDK Global, a provider of technology and marketing services to auto retailers that was spun off from payroll processing company Automatic Data Processing on October 1. The New York-based firm was founded by Scott Ferguson, the first analyst at William Ackman’s New York-based Pershing Square Capital Management, who eventually became a partner before leaving in 2012 after nine years with the activist firm.

In a regulatory filing, Sachem Head said the stock “is undervalued and is an attractive investment” and said it planned to hold discussions with the company, board of directors, other stockholders and others on issues including governance and board composition, management, operations, business, assets, capitalization, financial condition, strategic plans and the future of the company. This is mostly boiler-plate verbiage that officially puts the company on warning. Sachem Head was up a little less than 1 percent in the third quarter and is up 11.4 percent for the first nine months of the year, according to an investor in the fund.

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Two prominent hedge funds enjoyed a nice boost Monday after Micron Technology announced that its board of directors authorized the repurchase of up to $1 billion of its stock. Shares of the chip maker jumped 4 percent, to close at $32.30. They are now up more than 50 percent for the year. The stock has been a great boost to David Einhorn’s New York-based Greenlight Capital, which is Micron’s fourth largest shareholder and has counted the stock among its largest disclosed long positions all year. Micron’s second largest shareholder is Seth Klarman’s Boston-based Baupost Group, which owned 4.82 percent of the stock at the end of the second quarter.

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Valeant Pharmaceuticals has upped its offer to acquire Botox maker Allergan. In a letter made public, the drug giant — which has teamed up with Pershing Square on the deal — said it is “prepared to improve its offer and provide value…of at least $200 a share.” This was a little more than $15 a share above Allergan’s closing price on Friday. Investors, however, seem skeptical. Shares of Allergan actually dropped Monday by 1 percent, to $182.33.

“We are confident that an increase in our stock price, and in consideration, will provide that value,” states J. Michael Pearson, chairman and chief executive officer of Valeant, in the letter. “No other potential acquirer of Allergan has the operational and tax synergies that we have, and no other potential acquirer of Allergan can provide the value that we can.” Shares of Valeant, however, rose 1.11 percent on Monday, to close at $130.56.

“Since we made our offer many of your long-only shareholders, including your largest shareholder other than Pershing Square, have sold down or out,” Pearson goes on to say in the letter. “A number of your remaining large long only shareholders publicly expressed their concerns regarding actions you had been contemplating, and we understand that a number have privately expressed those concerns as well. Both ISS and Glass Lewis have been highly critical of the board.”

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Disgraced former Chesapeake Energy founder Aubrey McClendon is backing a new hedge fund firm, Caption Partners, according to CNBC. Two years ago it was reported that McClendon had run a hedge fund, Heritage Management, for a number of years within Chesapeake, trading commodities. Some critics claimed this operation was a conflict for the energy company. Although he was never accused of wrongdoing, McClendon, who now heads American Energy Partners, was eventually ousted from Chesapeake. The new fund will trade equity options, with the goal to benefit from volatility, according to the report. McClendon and other investors “will not be involved in the day-to-day operation and they do not have any voting rights,” according to a memo obtained by CNBC.

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