Starboard's battle with Smithfield over China-deal adds to activist image

Mon Jun 17, 2013 8:04pm EDT
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By Nadia Damouni and Olivia Oran

NEW YORK (Reuters) - Since Starboard Value LP was spun off as a separate hedge fund just over two years ago it has been fast gaining a reputation for aggressive shareholder activism, pushing for change in household names including AOL AOL.N and Office Depot Inc ODP.N.

Initially investing in small cap value companies, Starboard quickly gained a reputation in Silicon Valley as a corporate raider, targeting mostly technology companies including Agilysys Inc (AGYS.O: Quote), Openwave Systems and Extreme Networks Inc (EXTR.O: Quote) among several others.

But more recently the New York-based hedge fund has had an appetite for more diverse and larger companies, with its latest campaign focused on the world's largest pork producer Smithfield Foods Inc SFD.N, in a move that could scupper China's biggest takeover of an American company.

Consistent with its strategy - pushing for asset sales and spin offs to board and management shake-ups - the fund is pushing Smithfield to explore a breakup rather than go ahead with the planned $4.7 billion sale to Chinese meat company Shuanghui International.

The activist investor, now Smithfield's biggest shareholder with a 5.7 percent stake, said Smithfield could be worth 29 percent to 64 percent more than the $34 per share offered by Shuanghui if it split up and shopped its hog production, pork and international units separately.

"Some activists have a massive repertoire of strategies they use, but Starboard likes to get companies back to what they're good at, such as splitting off business divisions that are non core," said Kerry Pogue, managing director at Activist Insight, a data provider that tracks activism.

Starboard, which was spun off from Cowen and Company's asset management arm Ramius LLC in March 2011, is led by CEO Jeffrey Smith, who has become the face and name behind the fund's multiple proxy contests. He was not available for comment.

A major focus is board representation. This year, Starboard launched seven proxy contests, of which six involved efforts to gain board seats. For example in March Starboard nominated six members, including former Home Depot CEO Robert Nardelli, for the 10-member Office Depot board.   Continued...