This Week's Activist Filings

Activist investing can often be a wonderful catalyst for change and value creation in a business that may otherwise have very little chance of creating shareholder value. The rewards can be enormous but there are no guarantees. Noted activist investor Bill Ackman of Pershing Square was instrumental in the post bankruptcy outcome of mall operator General Growth Properties (NYSE:GGP) which created enormous shareholder value for equity investors. At the same time, Ackman hasn't been as successful with his efforts with bricks and mortar book retailer Borders Group (NYSE:BGP).

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Win Some, Lose Some
Like all things related to investing, there are no guarantees. However, activist positions are intriguing for several reasons. First and foremost, you are often invested alongside an investor with a significant stake in the company, so the alignment of interest is there. Also, most activist get involved when they see a strong likelihood of share price appreciation otherwise they would not get so deeply involved. And because existing shareholders are usually in the mood for a change, activist can get often get the support they need. (For more, see Activist Investors: A Good Or Bad Thing?)

A Kaleidoscope of Names

The most recent 13D filings include a technology company, a convenience store operator and a medical equipment company. Hedge fund Millbrook Capital Management (MMI) disclosed ownership of 7.1% of EMS Technologies (Nasdaq:ELMG), a designer and manufacturer of wireless communication products. According to a letter sent by MMI, they are urging the company to sell itself or some of its units in order to maximize shareholder value.

Secretive hedge fund SAC Capital now owns over 6% of the shares of Casey's General Stores (Nasdaq:CASY). Casey's was an acquisition target of Canadian based Couche-Tard which offered to buy the company for $38 a share and recently abandoned the offer. Shortly thereafter, 7-Eleven came back with a $40 a share offer. Casey's touts both offers as low. SAC Capital bought its shares for an average cost of $40.64, so they obviously feel that a higher bid is forthcoming. At the $40 price, Casey's is being valued at 5.9 times EBITDA. Smaller rival The Pantry (Nasdaq:PTRY), which is heavily indebted trades for 6.3 times EV/EBITDA.

Discovery Equity Partners significantly increased its position in medical equipment company ArtiCure (Nasdaq:ATRC) and now owns 9.4% of the company. ArtiCure has no net debt and trades for $8 or a market cap of $123 million. Discovery paid as high as $8.25 a share, so they clearly see some upside from these price levels.

Circle of Competence
Piggybacking on activist investors should still command the same due diligence as any other investment. If you can't understand how value can be created, that company may not be the best one to bet on. (For related reading, see Could Your Company Be A Target For Activist Investors?)

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