The Daily Alpha: Real talk on United's PR Problems, Whole Foods Activists and Fake Financial News

Apr 11 2017 | 2:48pm ET

Today we talk all things activist. Bill Ackman is buying fish sticks, Jana is targeting Whole Foods, and Goldman is mounting a defense for BHP. Finally, we talk the real reason why Panera Bread sold itself…and why it’s a good time to be in the activist defense business.

Hair of the Dog

Shot: Business Insider: United CEO's response to passenger being dragged off plane made the situation even worse.

Chaser: Boston Globe: United’s CEO won a PR award last month.

Stat of the Day: Hedge Funds Gain 0.33% in March

The global hedge fund industry returned 0.33% in March, according to the eVestment March 2017 Hedge Fund Performance Report.

Returns for the first quarter of the year stood at 2.63% and returns for the past 12 months now stand at 8.48%. In all of 2016, hedge funds returned 5.61%. Here’s more from eVestment.

Quotes of the Day

“Eighteen fish fingers are eaten every second across the U.K.”

Well, Bill Ackman is back in the pages of Bloomberg, but it’s not because of Valeant, his tennis game or some sort of new real estate for hedge fund managers.

Bloomberg portfolio, the hedge fund manager’s portfolio, has found redemption in fish sticks.

Ackman found value in U.K.-based frozen food firm Nomad Foods Ltd.

During the last 12 months, the company has offered a return that is twice the average of its regional competitors. In addition, the stock has topped the frothy U.S. stock market by roughly 10% since Jan. 1.

These are the types of stories that need to be told more often on the front page of financial media publications. In all seriousness, Tesla, Alphabet, Netflix, Snapchat – these are the firms that generate all of the headlines. And because of that – retail investors get pulled in by the flash.

But here comes Ackman, betting on frozen food.

It’s a reminder that after the financial crisis, the real money wasn’t made in ecommerce giants or streaming companies.

The big returns came from bets on a mattress company and a manufacturer of low noise amplifiers (LNA). 

“These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analysis.”

Speaking of financial media... 

The hammer came down Monday from the enforcement division of the Securities Exchange Commission (SEC).

Stephanie Avakian, acting head of SEC enforcement said in the statement.

The SEC charged 27 people over stock-promotion scams that effectively passed off sponsored content as real stock analysis. The agency said that it found at least 450 misleading articles. Roughly 250 of these articles were written by writers who said they were not compensated for the content.

"This is different from the fraud cases that you usually see us bring," Avakian said during a conference call. "Here, we allege that the fraud was in presenting the analysis as impartial. It was bought and paid for."

The list of companies that have faced charges includes Galena Biopharma, ImmunoCellular Therapeutics and Lion Biotechnologies.

At least $4.8 million in settlements have been doled out so far, and more are expected.

So what media shops got dragged into this?

The list includes Seeking Alpha, Forbes, TheStreet, Yahoo Finance, The Motley Fool, Benzinga, Minyanville, WallStCheatSheet, Small Cap Network, Investor Village and Market Playground.

The best breakdown of the scheme – mainly because a lot of financial publications don’t want to touch this or get into a “glass houses” situation – comes from DealBreaker’s Owen Davis.

Here’s Davis on the scheme, the actress’ film credits, and what it means for the financial press moving forward.

"Whole Foods Market welcomes investment in the company and is open to the views and opinions of all of our shareholders."

Whole Foods spokeswoman Brooke Buchanan responded to the news yesterday that Jana Partners has taken a large stake in the grocery company. Expect quite a battle.

Here are Jana’s seven demands, according to the Financial Times:

  1. Address chronic underperformance for shareholders
  2. Install new directors and senior management and improve governance
  3. Optimize real estate and capital allocation
  4. Fix its myriad operational problems
  5. Shake-up store management practices
  6. Improve supply chain   
  7. Launch a strategic review, “in light of the company’s apparent unwillingness to engage in discussions with third parties regarding such alternatives”.

 

“BHP declined to comment in an e-mailed statement, while a spokeswoman for Goldman Sachs declined to comment.”

Speaking of activists, Bloomberg reports that BHP has enlisted the help of Goldman Sachs Group to mount a defense against Paul Singer’s Elliott Management. As we reported yesterday, Elliott is pushing for BHP to spinoff its clean energy business despite the large sum of money it has invested in the division over the last few years and its self-imposed carbon-free targets.

Enter the activist defense practice of Goldman.

“I think, increasingly, in a public company model, it’s very tough to focus on the long-term.”

Finally, it’s been a busy April in deal news and activist activity.

One of the more surprising deals this money was the news that Panera Bread was purchased for $7.5 billion to European coffee and breakfast giant JAB Holding Co.

This has been a very strong company over the last year with the stock rallying more than 25% in the year predating the sales rumors.

We found a very good breakdown of what happened in a blog post at Nation’s Restaurant News, because – well – how can we tell anymore what opinions are real or fake anymore?

Author Jonathan Maze breaks down an interview between Panera CEO Ron Shaich in which the executive talks about how hard it is to be a public company. Panera had already gone through the rounds with an activist investor over its franchise model – it was also pressured to cut costs…at a time that the company was trying to expand. But there were other instances where the company was trying to think outside the box and investor groups were falling back to the same demands: cost reduction, real estate maximization and buybacks.

It looks like Panera’s executives just said “To hell with this” and went to a company that Shaich believes are known for measuring their “investments ‘in centuries, not decades.'”

“They are really long-term guys, which is what leads to competitive advantage,” he said to The Street. 

This is the short-term versus long-term debate that requires more exploration and fewer talking points. It’s a good time to be in the activist defense business. No one is safe.

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Garrett Baldwin is the voice of the The Daily Alpha, the features editor for Modern Trader magazine, and the author of The Man with The Big Red Balloon.

 


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