Barron’s recently sat down for a wide ranging interview with Jana founder Barry Rosenstein and partner David DiDomenico including topics such as investing in the 80’s and the current portfolio. Apparently some things have changed since Mr. Rosenstein got his start as an activist:
Today, companies and their advisors are much more sophisticated. Often times, when we show up, we will advocate certain things that they’ve already been thinking about. But in the 1980s, nobody thought about things that way. In fact, even from the activist’s perspective, the idea of publicly shining a light on a company and advocating change for the greater good just wasn’t done. It was really all about tendering for the company. Now, however, you really can’t tender for a company, because you can’t get that kind of financing, among other reasons. But the evolution of activism is not just an accident. The mainstreaming of activism is a function of its becoming much more institutional, and more inclusive. Everybody benefits, not just one guy. The shareholders benefit, and the employees ultimately benefit. Employees are never happy about working for companies that are underperforming. So activism has become a tool for greater efficiency and productivity
I am not sure that everyone would agree that ‘everybody’ benefits from the mainstreaming of activism, but it’s a nice thought. Although some aspects may have improved, companies still aren’t perfect:
You often have well-meaning directors who are smart. But they are often running their own businesses, so they are not fully focused on their board memberships. They come in every quarter. But unless something is radically wrong, they are OK with how things are going, and they move on and go back to their own businesses. And they come back the next quarter, but they are not owner-operators. They are not large owners of the company, so they don’t have the financial skin in the game that would cause them to focus. So when someone like us shows up, all of a sudden it jars people’s attention, and they start looking at the issues we identify. I’m not sure how that can change, but it is just a function of the board process.
Barron’s also discussed a few of the firm’s top positions, including Oil States International, which recently spun off its accommodations business, Civeo Corporation (CVEO):
Oil States was trading at a very low multiple when we acquired our stake at around 5.5 times Ebitda, versus 7.5 times recently. But both businesses are worth more than that. We had a great dialogue with the company’s CEO, Cynthia Taylor, who has a great reputation for driving shareholder value. Shortly after we presented her with some ideas, she announced her intention to separate the company’s two business. And that is set to happen at the end of the month when the accommodations business, to be called Civeo, will be spun out to common stockholders tax-free. Given the stability of that business and its underlying characteristics, it should trade more in line with, say, real estate investment trusts. You could even compare it to a nontraditional REIT like a prison REIT, and those businesses are trading at 13 to 14 times Ebitda. Corrections Corp. of America trades at nearly 13 times forward Ebitda.
It’s also interesting that some of the most sophisticated real estate investors in the U.S. are getting interested in the employee housing space as an asset class, particularly in areas like the Bakken Range in North Dakota. These properties are being sold and financed at 12 to 14 times Ebitda.
Civeo has since been spun off so it will be interesting to see how the market prices the company and if there is any sell off.
The entire interview is worth a read and it’s always interesting to hear how the pros approach these situations.
Disclosure: Author holds no position in any stock mentioned.