They all should be this easy. Shares of URS Monday surged more than 12 percent to close at $58.40 after the provider of engineering, construction, and technical services for government agencies and companies agreed to be acquired by engineering design firm AECOM Technology for about $4 billion in cash and stock. Including the assumption of URS debt, the total value of the deal is closer to $6 billion. You may recall that as recently as February 27, New York-based activist hedge fund firm Jana Partners, founded by Barry Rosenstein, disclosed in a 13D regulatory filing that it owned a 9.7 percent stake — later trimmed to 9.4 percent — and said it decided to have discussions with the company about the composition of the board, management, capital structure, corporate structure and other matters affecting shareholder value creation.
Jana also said it asked the board to delay the deadline for submitting board nominations and other shareholder proposals for the 2014 annual meeting. Three weeks later, URS announced it had worked out a compromise agreement with Jana that in part resulted in the nomination of four new independent directors. URS also agreed to create a value creation committee of the board, which would seek ways to boost the company’s stock price. This called for hiring an investment bank to conduct a strategic review of the business segments, operations and capital structure and review management compensation.
The deal announced on Monday was obviously a culmination of the committee’s work. Interestingly, just two weeks before it filed its 13D in late February, Jana filed a 13G when it crossed the 5 percent threshold, implying at the time that the investment was a passive position. On Monday Jana converted its filing back to a 13G, indicating it owns 9.8 percent of the shares. In a note to clients, Credit Suisse says anticipated cost synergies “are likely conservative.” However, it says it does not see revenue synergy opportunities. It explains that both companies have grown via acquisition. So, both companies “have traditionally had lower organic growth rates relative to industry peers.”
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In a further bid to build up its hedge fund business, private equity firm KKR & Co. is acquiring 24.9 percent of Houston-based BlackGold Capital Management, a credit-oriented hedge fund specializing in energy and hard asset investments. BlackGold was founded in 2006 by Erik Dybesland and Adam Flikerski. But KKR’s newest acquisition is keen to impart to investors that it’s business as usual at the firm, sending clients a post-acquisition email that declared in all capital letters, “EVERYTHING STAYS THE SAME AT BLACKGOLD- BUSINESS AS USUAL,” according to the Wall Street Journal.
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Hedge fund administrator SS&C Technologies reports that hedge fund flows declined by 1.77 percent in July, a new six-month low. It cites semi-annual redemptions. It will be more interesting to see what happens next month.
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Chicago-based hedge fund firm Citadel raised its stake in PHH Corporation to 9.6 percent of the total outstanding. On January 26, it reported a 6.9 percent stake in the company, which provides mortgage services, fleet management services and employee relocation services.
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Barclays raised its rating on hedge fund favorite Apple to Overweight from Equal Weight and lifted its price target to $110 from $95. Barclays tells clients in a note these upgrades are “needed” given a few big changes since March versus its expectations. “We believe Tim Cook has solidified his strategy and re-gained the confidence of Apple stakeholders in many ways — reversing many of the warning signs we saw earlier in the year,” the bank writes in the report. The stock closed at $96.45, up 1.3 percent.
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The bear argument won Monday in the dueling sell-side analyst war over TripAdvisor, the travel website that’s a favorite among the hedge fund set. Credit Suisse raised its price target on the stock to $125 from $105, stressing that it underestimated what it calls “tailwinds associated with medium-term platform improvement initiatives.” It is not exactly clear what they are referring to here except it is related to all of those advertising reminders and prompts to use the site, since I am a fairly heavy user of the website. However, also on Monday Nomura Securities reportedly downgraded the stock to “neutral” from “buy” for valuation reasons. The stock closed Monday down 0.70 percent , suggesting the Nomura sentiment resonated more with investors.
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Credit Suisse also raised its price target on Google, another hedge fund favorite, to $742 from $735. “While we believe investor attention has been focused primarily on YouTube as Google’s next multibillion dollar opportunity, we submit that Google Play has grown over the last two years from essentially zero to a level equal to YouTube in size,” the bank tells clients in a note, figuring it should contribute $4.4 billion in revenue this year.
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Lyxor Asset Management’s latest Alternatives Insight report notes that hedge funds “show continued appetite” for equities but signal rising caution on U.S. credit. “This is being seen in the context of rising fears concerning financial stability following the extended period of near-zero interest rate policies implemented by the major central banks,” Lyxor explains. According to a recent survey it conducted, 65 percent of managers do not expect the credit rally to continue. It also notes the survey found hedge fund managers agree that U.S. equities are not overvalued and European equities remain undervalued.
