Long Term Returns of ValueAct Capital’s Activist Targets
In this article we're going to discuss the long-term returns of ValueAct Capital's activist targets. If you want to see more stocks from our selection, we suggest you navigate to our picks of Long Term Returns of Value Act Capital's 5 Activist Targets.
ValueAct Capital is a hedge fund that was co-founded in 2000 by Jeff Ubben and over the years it has become one of the most famous activist funds on the Street. Ubben prefers to take a fairly “mild” activist approach towards his investments. Unlike other activists, rather than engaging in proxy fights and promoting drastic measures (like hostile takeovers), Ubben and his team seek board representation and partnerships with big shareholders and top managers to stimulate growth and unlock value.
As an activist fund, ValueAct has made a name for itself by getting involved in giants like Microsoft Corp (NASDAQ:MSFT), Adobe Inc (NASDAQ:ADBE), and more recently New York Times Co (NYSE:NYT) and Salesforce Inc (NYSE:CRM). The fund scored an average return of over 40% per year since its inception, outperforming the S&P 500 by a wide margin.
In its latest 13F filing, ValueAct disclosed holding investments in just nine companies and historical data shows that the fund prefers holding a more concentrated portfolio. The fund usually keeps its investments for a period of at least three-to-four years, as it happened with the aforementioned Microsoft Corp (NASDAQ:MSFT), Adobe Inc (NASDAQ:ADBE), and Citigroup Inc (NYSE:C), which made the list of long term returns of ValueAct Capital’s Activist targets. However, it also has more long-term positions like CBRE Group Inc (NYSE:CBRE), Gartner Inc (NYSE:IT), and Bausch Health Companies Inc (NYSE:BHC), which you can find more details about under Long Term Returns of Value Act Capital's 5 Activist Targets.
Even though the portfolio doesn't contain a lot of stocks, it is diversified across sectors. Over the years, ValueAct prefers to switch its focus from one sector to another, but generally, the majority of its holdings are focused in Finance, Technology, and Healthcare. However, in the last several quarters, ValueAct exited the healthcare sector and currently more than half of its $6.5 billion 13F portfolio is in tech stocks.
Ubben himself is no longer involved in ValueAct, having stepped down in 2020, after handing over the reins of the main fund to Mason Morfit, who is currently the Chief Executive Office and Chief Investment Officer. In 2018, Ubben started managing ValueAct’s ESG-focused (environmental, social, and governance) fund ValueAct Spring Capital, but two years later stepped down to launch a new venture, Inclusive Capital, which is focused on impact investing.
However, even without Ubben, ValueAct appears to continue following his legacy and approach to investing. For example, in Salesforce Inc (NYSE:CRM), ValueAct initiated a stake in the fourth quarter of 2022 and has since increased it to 3.49 million shares (as of the end of June). In January 2023, Salesforce Inc (NYSE:CRM) announced three new board appointments, including Mason Morfit. Also, under the leadership of Morfit, ValueAct launched its first activist campaign in Japan, by acquiring around 2% of video game company Nintendo. According to a Reuters report, ValueAct said it saw potential in Nintendo to grow and transform into a larger entertainment company.
Our methodology
Activist investors are interesting to follow because they often provide their view about their holdings and offer details about the intrinsic value and ways to unlock more growth. They are also a much better imitation target than more traditional value or growth investors due to the a shorter-term horizon of their acquisitions. If you are interested in the topic of activist investing, then you might want to take a look at our picks of Long-Term Returns of Billionaire Barry Rosenstein’s Activist Targets.
In order to identify the long term returns of ValueAct Capital’s activist targets, we looked through the fund’s quarterly 13F filings and identified a list of 10 companies in which the fund held a position for at least three years. In addition we identified the actions that ValueAct Capital took towards its long-term activist targets and the returns that the stock provided during the period that it was in the fund's portfolio.
Without any further ado, let’s take a look at long term returns of ValueAct Capital’s Activist targets, which in addition to Microsoft Corp (NASDAQ:MSFT) and Adobe Inc (NASDAQ:ADBE), include some other rather interesting names.
12. MSCI Inc (NYSE:MSCI)
Quarter first owned: Q4 2012
Quarter sold: Q3 2016
In a 13D filing from November 2012, ValueAct Capital disclosed holding around 6.16 million shares of MSCI and the company was present in ValueAct's portfolio until the third quarter of 2016. The company's stock appreciated by nearly 200% during that time. After attempts to discuss with the board and the management behind the curtains, in January 2015, Ubben published a letter addressed to MSCI Inc (NYSE:MSCI)'s board in which he expressed concerns with the company's strategy and said that the company had rejected ValueAct's requests for board seats. Taking the matter public helped, as less than a month later MSCI Inc (NYSE:MSCI) reached an agreement with ValueAct and appointed three independent directors, including Robert Hale, a ValueAct partner.
11. LKQ Corp (NASDAQ:LKQ)
Quarter first owned: Q3 2019
Quarter sold: Q1 2023
LKQ Corp (NASDAQ:LKQ) is a US-based provider of automotive parts and accessories, in which ValueAct Capital first disclosed a 5.2% stake in September 2019, via a 13D filing. The disclosure itself caused the stock to jump by more than 8% at the time. A year later, LKQ Corp (NASDAQ:LKQ) appointed Jake Welch, a Partner at ValueAct, to its board of directors. As ValueAct held its position in LKQ Corp (NASDAQ:LKQ), its stock appreciated by more than 70%.
10. Microsoft Corp (NASDAQ:MSFT)
Quarter first owned: Q1 2013
Quarter sold: Q4 2017
ValueAct Capital first disclosed holding roughly 33.4 million shares of Microsoft Corp (NASDAQ:MSFT) in its 13F filing for the first quarter of 2013. The company was in the fund's portfolio for about five years, during which the stock surged by more than 200%. By August 2013, ValueAct held around 0.8% of Microsoft Corp (NASDAQ:MSFT), becoming one of the top shareholders of the tech behemoth. At the same time, the fund entered into a cooperation agreement with Microsoft. As part of the deal, ValueAct's president Mason Morfit would've had regular meetings with some of Microsoft's directors and management. Also, in line with the agreement, Morfit joined Microsoft Corp's board in March 2014 and maintained the seat until 2017. According to reports, Morfit and ValueAct were one of the main driving forces for then-CEO Steve Ballmer's retirement.
9. Citigroup Inc (NYSE:C)
Quarter first owned: Q4 2017
Quarter sold: Q4 2022
Next on our list of long term returns of ValueAct Capital's activist targets is Citigroup Inc (NYSE:C). During the fourth quarter of 2017, ValueAct acquired 1.1 million shares of Citigroup Inc (NYSE:C) and by the time the position was liquidated it amounted to 11 million shares. However, at one point, ValueAct held around 32 million shares of the banking giant. The investment might not have played out as expected since Citigroup Inc (NYSE:C) stock dipped by 37% between October 2017 and December 2022, but the exact return for ValueAct is hard to assess. According to a CNBC report, ValueAct expressed disappointment in the leadership of Citigroup Inc (NYSE:C) CEO Michael Corbat and contributed to his retirement, even though the fund said it hadn't requested the CEO's removal.
In 2020, ValueAct's Mason Morfit said during the 13D Monitor Investor Summit that they see Citigroup Inc (NYSE:C)'s stock doubling and that the bank is well positioned for strong long-term growth, according to reports. In 2019, ValueAct and Citigroup entered into an information sharing agreement to facilitate the engagement between the investor and the company's board and management.
8. Adobe Inc (NASDAQ:ADBE)
Quarter first owned: Q1 2011
Quarter sold: Q2 2016
Then on our list of long-term returns of ValueAct Capital's activist targets is Adobe Inc (NASDAQ:ADBE), whose stock surged by 190% between the first quarter of 2011 and the second quarter of 2016, during which the fund held a position in the tech company. ValueAct got a board seat at Adobe Inc (NASDAQ:ADBE) and saw the company transition from a packaged software seller to a subscription-based services provider. This transition was very successful for Adobe Inc (NASDAQ:ADBE), with the stock ballooning by around 1,500% since then.
7. Motorola Solutions Inc (NYSE:MSI)
Quarter first owned Q1 2011
Quarter sold Q4 2016
Alongside Adobe Inc (NASDAQ:ADBE), ValueAct also held a position in Motorola Solutions Inc (NYSE:MSI) for a period of roughly five years, during which the stock more than doubled. At one point, ValueAct disclosed holding nearly 10% of Motorola Solutions Inc (NYSE:MSI) and appointed one of its partners Bradley Singer to its board of directors. In 2014, ValueAct and Motorola Solutions Inc (NYSE:MSI) entered into an agreement, under the terms of which the company bought back 11.3 million shares for $750 million.
6. Armstrong World Industries Inc (NYSE:AWI)
Quarter first owned: Q2 2014
Quarter sold: Q2 2019
Then there's Armstrong World Industries Inc (NYSE:AWI), in which ValueAct Capital invested during the second quarter of 2014 and sold out in the last three months of 2020, seeing the stock gain more than 100%. Less than a year after investing in the company, ValueAct obtained a board seat at Armstrong World Industries. Soon after ValueAct's involvement, Armstrong World Industries announced the spin-off of its flooring business into a separate publicly-traded company, Armstrong Flooring. ValueAct sold out of Armstrong World Industries Inc (NYSE:AWI) during the second quarter of 2019, but maintained a position in Armstrong Flooring for several more quarters. Last year, Armstrong Flooring filed for bankruptcy citing higher costs that outpaced its price growth.
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