Activist hedge fund manager Barry Rosenstein is back in the spotlight. The JANA Partners founder Monday announced he is teaming up with the Ontario Teachers’ Pension Fund to press for some sort of change at McGraw-Hill, the stodgy publisher and owner of credit rating agency Standard & Poor’s.
In his regulatory filing, Rosenstein says he believes the shares are undervalued and represent an attractive investment opportunity. He also states that he has had discussions with management relating to, among other things, the business, corporate structure, operations, management and board composition, strategy and future plans and expects to have additional discussions with management as well as with the board of directors, shareholders and other parties “and may take other steps seeking to bring about changes to increase shareholder value as well as pursue other plans or proposals that relate to or would result in any of the matters.”
Rosenstein is big on pushing companies to institute a large stock buyback, issuing a special one-time fat dividend or dividing into several parts.
McGraw-Hill is prone to a break up given its four seemingly unrelated business — Education publishing; Information and Media, which includes trade publishing, J.D. Power & Associates and Platts; McGraw-Hill financial, which includes the S&P Indices and equity research; and the Standard & Poor’s credit ratings.
Some of Rosenstein’s past successes underscore his style.
For example, in 2005 Rosenstein and Carl Icahn teamed up to launch a proxy fight against Kerr-McGee before the energy firm agreed to some of their suggestions to boost its stock, including a massive stock buyback. In June 2006, Anadarko Petroleum acquired the company for $16.5 billion plus the assumption of debt.
Although operating mostly under the radar, Rosenstein has enjoyed a few victories in recent years as well.
Back in May, El Paso Corp announced plans to break the company into two publicly traded businesses by year-end shortly after JANA disclosed it owned more than 4 percent of its shares.
Last year, after an aggressive campaign, JANA coaxed Charles River Laboratories International to terminate its previously agreed upon deal to acquire WuXi PharmaTech and instead to authorize a new stock repurchase program.
Also last year, JANA and Canada’s Alberta Investment Management Corp (AimCo) teamed up to convince Dutch mail and express delivery company TNT to separate its two businesses.
In 2009, Convergys agreed to expand the size of its Board of Directors to include Rosenstein and former Alltel COO Jeffrey H. Fox as well as one new independent director, mutually agreed upon by Convergys and JANA. The relationship management company subsequently named Fox president and CEO.
Rosenstein, however, does not fashion himself as a strictly activist investor, but rather an event-driven hedge fund manager who looks for value situations that offer potential catalysts to unlock the value. This strategy has served him very well so far. Since he launched JANA Partners in April 2001, he has racked up a 14 percent annualized return, net of his 1 percent management fee and 20 percent performance fee. Like many hedge fund managers, however, his long-term record was significantly undermined by 2008, when his main fund was down 23.6 percent. So far, it is his only losing year. In fact, he has racked up double-digit gains in seven of his nine profitable years.
At year-end Rosenstein managed $2.3 billion, mostly in the JANA Master Fund, Ltd. In 2007, he launched JANA Nirvana Fund, a concentrated fund that invests in a select number of JANA positions. It had $360 million under management at year-end.
Rosenstein actually has fairly extensive buyout and merchant banking roots, great training for an activist. Before launching JANA, he was the founder and managing partner of Sagaponack Partners LP, a private equity fund. Prior to that, Rosenstein founded and headed Genesis Merchant Group’s Investment and Merchant Banking Group. Before starting up Genesis, he formed and acted as managing partner of Reatta Partners, through which he attempted to take over Justin Industries Inc. Before Reatta, he was a principal in charge of corporate takeovers for Asher Edelman’s Plaza Securities Corp.
Rosenstein began his career as an investment banker, specializing primarily in mergers and acquisitions with Merrill Lynch in New York after graduating in 1981 Phi Beta Kappa from Lehigh University with an accounting degree. In 1984, he earned his MBA in finance from the University of Pennsylvania’s Wharton School of Business. History shows Rosenstein knows how to unlock value at a seemingly underperforming company.
