ValueAct Capital, managed by activist hedge fund manager Jeff Ubben, is calling for the sale of industrial equipment manufacturer Gardner Denver following the unexpected resignation of its CEO Barry Pennypacker.
For ValueAct, which manages over $7.5 billion and has a tradition of nonbeligerent activism and board cooperation, this is the first time it has recommended a company be sold.
ValueAct generally likes to take dominant stakes in a small number of companies it deems to be temporarily undervalued, underperforming or mispriced. It then tries to work closely with current management or bring in its own industry experts to help map out a turnaround plan.
Last year, it held between 14 and 20 stocks at any given time.
However, in this case ValueAct stresses it did not seek a board seat — as it frequently does — given the “relatively short tenure of our investment,” an indication that it began buying the shares shortly before Pennypacker’s surprising resignation.
The hedge fund makes it clear in the letter it is going public now with its recommended plan of action since the board is meeting early next week to consider several key strategic decisions.
In the letter ValueAct commended interim CEO Michael Larsen for how he has handled the “difficult situation.”
However, it also expressed concern that Pennypacker’s resignation creates much more risk about the potential success of company restructuring plans, stressing that Pennypacker’s experience, skill set and management approach were “uniquely well-matched to the strategic opportunities and priorities” of the company. Spivy adds that Pennypacker’s departure is especially inopportune in light of a number of developments, including its plans to restructure its European operations over the next 18 to 24 months as well as the cyclical weakness of GDI’s upstream energy business.
“It is worth noting,” ValueAct says in the letter, “that the team has been significantly rebuilt over the past several years with many executives who had direct experience and apparent affinity working with Barry, and thus, inevitably, may now be at risk for further turnover.”
Regarding its call for an outright sale of the company, Spivy makes the case for a private equity firm being interested in the company, given Gardner Denver’s expectation of generating “an impressive level of cash flow.”
As proof that there would be interest in the company, he points to Friday’s coincidental announcement of United Technologies’ sale of its Hamilton Sundstrand industrial unit to Carlyle Group and BC Partners for $3.5 billion.
According to one source, there were over ten participants in the Hamilton Standard auction, and eight of them did not win it with teams well versed in the compressor and pump Industry.
ValueAct is calling on the board at its upcoming meeting to retain advisers to solicit an all-cash offer for 100 percent of the company.
