Paul Singer’s Elliott Management Corp. filed fresh 13D’s on two separate companies in the same industry on Thursday morning. The New York-based, activist-oriented firm said it owns 6.6 percent of Polycom and 9.6 percent of Mitel Networks, which works out to roughly a $100 million investment in each of the two companies.
In an 11-page letter to the board of Polycom, Elliott senior portfolio manager Jesse Cohn urges Polycom to merge with Mitel, a suggestion he says he has already communicated to Mitel. He also points out the hedge fund has a passive investment in another industry player, ShoreTel. The three companies are what Elliott calls unified communications and collaboration vendors. Polycom makes video-conferencing equipment, while Mitel is a telecom provider. Cohn calls on Polycom to undergo “a full strategic review” to address its underperforming stock.
“Elliott strongly believes a combination of mid-tier UCC vendors will create greater scale, significant synergies and a meaningful valuation uplift for stockholders,” Cohn adds. “Elliott would be willing to provide financing for Polycom’s acquisition of targets in the space, something we have successfully done before.” He thinks Polycom’s stock could rise by 85 percent by the end of 2017.
In the Mitel filing, Elliott says it has been a long-time passive investor but has now shifted to engage “in an active dialogue” on a range of strategic options to create value, including a merger with Polycom, which it asserts “could generate significant equity value for shareholders.”
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Deutsche Bank cut its price target on Yum Brands, from $90 to $76, one day after the stock plummeted nearly 19 percent following its disappointing earnings report. Noting the company’s subsequent statements about problems in its China operations, the investment bank asserts: “While we are pleased to hear the company own up to the missteps and take accountability for the shortfall, we believe a level of uncertainty (macro issues and self-inflicted wounds) still exists across the region.” Deutsche Bank adds that it is cautious on the China turnaround and not only cut its price target but maintained its hold rating as well.
Credit Suisse also cut its price target on the stock on Thursday, from $86 to $75. However, it upgraded its rating on the stock to neutral from underperform, noting that “expectations have been reset.” It feels there will now be additional pressure to spin off the China operations. “While we see limited valuation arbitrage from a spin, we believe investors would prefer the option of owning the YUM of their choosing,” Credit Suisse adds in a note to clients. The stock slipped another 0.37 percent on Thursday.
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More bad news for embattled hedge fund favorite SunEdison. Shares of the renewable energy company fell another 5.76 percent. to $9.16, after Credit Suisse cut its price target for its already depressed shares from $35 to $25. The bank noted that SunEdison issued 2016 guidance, lowering expected volumes by 20 percent but cutting its operating cost estimate by 50 percent.
“This is one of the first times the company has taken a more conservative posture, de-emphasizing growth at any cost and pivoting to more third-party sales to bolster liquidity,” the bank explains in a note to clients. It also retained its outperform rating on the stock.
At the end of the second quarter, major investors included New York-based Greenlight Capital; New York-based Third Point; New York-based Glenview Capital Management; Greenwich, Connecticut-based Lone Pine Capital; New York-based Omega Advisors; and New York-based Fir Tree Partners.
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Boston-based Adage Capital Partners boosted its stake in Ocean Rig UDW Inc. to 8.5 million shares, or 5.29 percent of the offshore drilling contractor that provides oilfield services.
