A pedestrian sporting a protecting masks exits from the Wall Street subway station in New York, on Monday, July 20, 2020.
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Company: CoreLogic Inc. (CLGX)
- Business: CoreLogic is a supplier of property data, analytics and data-enabled companies. The firm offers detailed protection of property, mortgages and different encumbrances, property threat and substitute price, client credit score, tenancy, location, hazard threat and associated efficiency data. Its segments embrace Property Intelligence (PI), Risk Management and Work Flow (RMW), and Corporate. The Property Intelligence section owns or licenses actual property, mortgage and client data, which incorporates mortgage data, property gross sales and attribute data, property threat and substitute price, pure hazard information, geospatial information, parcel maps and mortgage-backed securities data. The RMW section owns or licenses actual property data, mortgage data and client data, which incorporates mortgage data, property gross sales and attribute data, pure hazard information, parcel maps, employment verification, legal data and eviction data.
- Stock Market Value: $5.Four billion ($68.16 per share)
Activist: Senator Investment Group/Cannae Holdings Inc.
- Beneficial Ownership: 9.99%
- Average Cost: $43.96 per share
- Activist Commentary: Senator Investment is a New York-based hedge fund that’s not traditionally identified for activism. However, final yr they employed Quentin Koffey from D.E. Shaw, who was beforehand a portfolio supervisor at Elliott Management and has years of expertise in shareholder activism. Cannae Holdings, Inc. (CNNE) is a publicly traded holding firm engaged in actively managing and working a bunch of corporations and investments. Cannae’s major investments as of December 31, 2019 embrace minority possession pursuits in The Dun & Bradstreet Corporation, Ceridian HCM Holding, Inc. and Coding Solutions Topco, Inc. (the three way partnership that now owns T-System Holdings, Inc.); majority fairness possession stakes in O’Charley’s, LLC and 99 Restaurants Holdings, LLC; and varied different fairness and debt investments primarily in the actual property, monetary companies and healthcare know-how industries.
On July 29, 2020, Senator Investment Group and Bill Foley’s Cannae Holdings (the Group) despatched a letter to the corporate saying that following the corporate’s rejection of its proposal to accumulate it for $65 per share, the group is shifting ahead with the method of calling a particular assembly to take away a majority of the board and exchange them with 9 new administrators.
Behind the scenes:
Senator teamed up with Cannae Holdings, a 2.89% holder, and supplied to accumulate the corporate at a 37% premium to the corporate’s unaffected worth and a 26% premium to the corporate’s 52-week excessive. This is a state of affairs analogous to the Valeant/Pershing Square/Allergan marketing campaign of 2014. Cannae wish to purchase CoreLogic, however CoreLogic won’t ever promote to them absent extreme stress from their shareholders. So, Cannae groups up with one in every of their bigger shareholders, Senator, who will exert that stress.
Situations like these straddle the fence of shareholder activism as a result of it’s unclear whether or not the “activist” is aligned with shareholders to get the best worth or aligned with the acquirer to get the bottom worth. Absent a few occasional sentences alluding to maximizing shareholder worth by way of a sale course of, the Senator letter appears to be extra keen on promoting to Cannae than promoting to the best bidder. However, this isn’t in line with Quentin Koffey’s philosophy and historical past and we might anticipate him to guarantee that any sale of the corporate would solely be executed after an exhaustive seek for the best bidder.
The firm was not keen on promoting so they didn’t interact with Senator and instituted a poison capsule and different ways to thwart a possible hostile takeover. This shouldn’t be uncommon neither is it essentially poor company governance within the context of a possible hostile takeover. However, Senator goes a bit too far by characterizing these and different ways as a “scorched earth” coverage. Scorched earth ways worthy of board substitute are examples like Darden unexpectedly promoting the precious Red Lobster franchise shortly earlier than they misplaced management of the board to Starboard and within the face of big shareholder opposition to the sale. A board has the correct to determine to not promote the enterprise and as a substitute give attention to long run worth. That shouldn’t be unhealthy company governance as Senator implies of their letter. Nor is it grounds to interchange a complete board. There must be egregious conduct or underperformance at an organization to justify changing a majority of the board. Senator doesn’t come near alleging that type of conduct right here, and the corporate’s efficiency within the yr previous to the date Senator introduced its acquisition supply was 22.2% versus 5.4% for the S&P 500. It takes so much to interchange a board majority and ISS and enormous institutional shareholders is not going to assist such a transfer simply because the brand new board could also be extra receptive to operating a gross sales contest.
This is harking back to Marcato’s try at Deckers the place there additionally was no proof of egregious misconduct or extreme underperformance and the place Marcato acknowledged that “there was a complete collapse in shareholders’ confidence within the Company’s Board of Directors and administration crew” and “a sale of the Company on this case very probably presents the best risk-adjusted return for stockholders.” Subsequently, Marcato lowered its slate from 9 to 3 when it realized it was misguided going for a majority, and on the election they didn’t even get any of the three administrators elected. On the day of the election in December of 2017 Deckers inventory was buying and selling at $75.98 per share. Today it trades at $215.51 per share.
Koffey has created vital worth for shareholders at corporations like Lowe’s and has orchestrated some very constructive transformations at corporations like EQT. The main distinction is that these restructurings had been executed within the public entity the place the shareholders took the complete threat and reaped the complete rewards of the turnaround. In this case, assuming that Bill Foley is the “Hunter Harrison” of this trade and the most effective man to turnaround CoreLogic, Senator is asking shareholders to forego the great upside of a profitable turnaround for the understanding of a 37% return as we speak.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.