Stock Spinoffs

Spinoff Odds & Ends: New Activist At Shire $SHPG, RBR Raising Money To Fight $CS

In this edition, we provide a few updates to some of our recent articles focusing on activist activities:

1) Sachem Head vs. Shire Pharmaceuticals (SHPG)

Shire Pharmaceuticals announced this summer that it was considering its ‘strategic options’, including a potential spinoff, for its neuroscience division in order to better focus on its rare diseases business. Unfortunately, the company’s stock has continued to suffer and the calls to action from shareholders are apparently getting louder. Sachem Head Capital, which famously went active at CDK Global (CDKless than a month after its spinoff, has apparently amassed a small stake (CapIQ lists the fund with 0.26% of the shares) in the company and is urging it to consider a more dramatic course of action, including more spinoffs. Music to our ears. The details were scant and apparently, the fund has yet to send a formal letter on the subject, but still worth noting the potential for action here. Despite CEO Flemming Ornskov’s statement that the Baxalta acquisition has gone ‘better than’ anticipated, the stock has since struggled and there are questions about the company’s future growth. Management obviously wants more time to deliver, but the heat is on.

2) Rudolf Bohli’s RBR Capital vs. Credit Suisse (CS)

Last week, we highlighted an activist campaign being waged by RBR Capital against Credit Suisse urging the bank to, among other things, break up into three parts and invest in new IT. Apparently, manager Rudolf Bohli is in talks with hundreds of investors to raise a large war chest in order to turn up the heat on the company. The target raise is ~$1b (really 1b CHF), which would be quite a significant amount of funds for a manager currently standing at 250m AUM. Part of the reason for the raise appears to be that he has been under attack for its small holdings of the company and perhaps he feels he needs to gain more clout. Interestingly, Mr. Bohli thinks current CEO is Tidjane Thiam is ‘a great guy’ and expects he will ‘ultimately go along with his proposals’ and is ‘supportive’ of the current board. You don’t hear that too often from an activist at this stage. Two comments on this:

a) It’s interesting how much flack Mr. Bohli has taken for his small position in the company. Our previous note highlighted plenty of examples of activists going after companies with small stakes. Just look at Sachem Head’s Shire holdings above! While it’s understandable, I bet it also has something to do with the quality perception of the idea, which leads to…

b) I think it’s unlikely he hits his goal. Mr. Bohli’s activist track record in mixed, having failed in his most recent campaign at GAM. The bigger issue though is that the company’s largest shareholder is opposed to the breakup which puts quite a big obstacle in the way of any plan being advanced. Management now has a key ally in rebuffing any potential attack meaning he would need quite a lot of shares to influence management. It becomes a circular problem though because why would investors want to pile in (and presumably lock up capital while paying fees) for an idea that, even if they like, has murky odds of success? Especially, as Bloomberg notes, they could just buy Credit Suisse common and enjoy the liquidity benefits and the upside it offers. Thats why you raise the money first…like this guy.

Disclosure: Author holds no position in any stock mentioned.

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