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Activist Investor Starboard Argues for Upside at One Chip, One Ag Science Firm

Scott Deveau
·3 mins read

(Bloomberg) -- Activist investor Starboard Value said it believes agricultural science company Corteva Inc. and ON Semiconductor Corp. have substantial opportunities to improve their performance, and in the case of the latter, maybe even become a potential takeover target.

Starboard Chief Executive Officer Jeff Smith argued at a virtual conference Thursday that both companies are undervalued and have plenty of levers they can pull to improve earnings.

Corteva’s management has already identified $1.9 billion in cumulative cost savings, which Smith noted would represent 100% of company’s earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2017. Roughly $1 billion of that is expected to be realized this year.

Despite that progress, Corteva has failed to bring margins and earnings in line with peers, Smith said.

“We all think Corteva is a business that should achieve long-term success,” Smith said at the 13D Monitor Active-Passive Investor Summit. “Despite our positive long-term outlook, the company has not yet lived up to its potential.”

Corteva’s Focus

Corteva completed its spinoff last year from DowDuPont Inc. The company said in a statement it was focused on its current strategy while it navigates the impact on its business from the outbreak of the coronavirus.

“Corteva engages in regular communication with its shareholders, and we welcome continued engagement with Starboard Value and hearing their perspectives related to enhancing shareholder value,” it said in the statement.

Smith noted that Corteva’s 2019 Ebitda margin of 14.4% trails its peers, and argued the company should bring those numbers up to about 23%, roughly in line with its competitor, Bayer CropScience Ltd. With that level of improved execution, the company could see its shares trading at $47 to $55, he said.

Corteva rose 5.8% to $32.30 at 2:47 p.m. Thursday in New York trading, giving the company a market value of $24 billion.

Takeover Potential

Smith said there are similar opportunities at ON Semiconductor, which he argued could be an attractive takeover target as well. The company also has an opportunity to bring in a new leader to oversee the necessary changes with CEO Keith Jackson stepping down in May 2021.

Smith said the company should shrink its manufacturing footprint, outsource some of its fabrication work, and potentially explore a sale.

“We believe it’s a great time to invest in an industry leader that has opportunity for margin and growth improvement, trades at a steep discount to peers and could potentially be a strategic M&A target,” Smith said.

A representative for On Semiconductor wasn’t immediately available for comment.

On Semiconductor’s shares rose 10% to $25.78 at 2:47 p.m., giving the company a market value of $10.6 billion.

(Updates with company comment in fifth paragraph. ON Semiconductor’s name was corrected in an earlier version of this story.)

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