By Robin Sidel And Liz Hoffman
Another blue-chip American company is in the cross hairs of an
activist investor.
Hedge fund ValueAct Capital Management LP has taken a roughly $1
billion stake in American Express Co., according to a person
familiar with the matter, putting added pressure on the card giant
following a series of setbacks in recent months.
Based in San Francisco, ValueAct has built a reputation as a
friendly activist and founder Jeffrey Ubben has said he prefers to
work behind the scenes with companies rather than clash in public
with management. It isn't clear whether ValueAct is pressing for
changes at AmEx, which has a market capitalization of about $75
billion and has been led by Chief Executive Officer Kenneth
Chenault since 2001.
AmEx shares were down about 19% this year before Friday, in part
because the firm announced in February that it would lose a
lucrative partnership with warehouse club Costco Wholesale Corp.
next year. AmEx shares jumped 6% after Bloomberg News reported the
ValueAct stake.
"ValueAct is a well-respected firm," AmEx said in a statement.
"We have been speaking with them, as we do with other investors,
and look forward to continuing a constructive dialogue."
A person familiar with the situation said that ValueAct hasn't
made any demands upon AmEx and that the conversations, which have
included Mr. Chenault, began earlier this year.
ValueAct's position is the latest example of activist investors
moving up the corporate food chain toward larger targets. So far
this year, activists have taken stakes in 17 companies with market
capitalizations over $10 billion at the time the position became
public, a full-year record and more than double the year-to-date
average since 2006, according to FactSet.
Activists have gone after big companies before-- William
Ackman's Pershing Square Capital Management LP, for example,
agitated for change at Procter & Gamble Co. in 2012--but they
have stepped up the pace.
Just this week, Mr. Ackman's Pershing Square disclosed a 7.5%
stake in snacks company Mondelez International Inc., which has a
market capitalization of $75.3 billion, and Daniel Loeb's Third
Point LLC unveiled a 7% stake in pharmaceuticals company Baxter
International Inc., with a market value of $22.8 billion. Other big
companies contending with activists this year include Macy's Inc.,
Citrix Systems Inc. and Bank of New York Mellon Corp.
Their ambitions have been fueled by their growing financial
firepower. These funds now oversee about $127.5 billion, up from
$65.5 billion at the end of 2012, according to HFR. Their increased
size helps them put more money behind their ideas and in some ways
necessitates bigger swings. ValueAct manages about $20 billion,
according to a person familiar with the matter.
ValueAct's roughly $1 billion stake represents about 1.3% of
AmEx shares. Positions under 5% aren't required to be quickly
reported in regulatory filings.
The move by ValueAct comes at a particularly rough time for
AmEx, which said in February that it was unable to reach agreement
with Costco on a deal to continue their 16-year relationship.
AmEx has been the only credit card accepted at Costco, and the
companies' co-branded credit card accounts for 8% of AmEx's
customer spending. Costco cards represent roughly one in every 10
AmEx cards in circulation.
A week later AmEx lost an antitrust lawsuit that will allow
merchants to start steering customers to use cheaper cards. The
loss was particularly damaging to Mr. Chenault, who had refused to
settle the case.
In May, AmEx President Edward Gilligan, who had been viewed as a
potential successor to Mr. Chenault, died on a plane after a
business trip to Japan.
Mr. Chenault, 64 years old and one of the longest-tenured
leaders in the financial services industry, has tried to reassure
investors and analysts that the company will be able to bounce back
from the recent blows.
Bill Smead, a money manager who started buying AmEx shares in
the first quarter, doesn't think ValueAct will demand big
changes.
"My guess is that they just have a lot of confidence of where
the value of the business is going to be in the next three years,"
said Mr. Smead, chief executive and chief investment officer of
Smead Capital Management, a Seattle-based asset management firm
with $1.9 billion in assets under management. The firm held 615,756
shares of AmEx as of Aug. 5, worth around $46 million.
ValueAct typically seeks to maintain a low-key profile, a stance
Mr. Ubben has attributed to an uncomfortable turn in the spotlight
as chairman of Martha Stewart's home-goods company.
ValueAct's largest position as of March 31 was a 4.4% stake in
Valeant Pharmaceuticals International Inc., now worth $3.7 billion.
It has held shares of the drug maker since 2006, coinciding with a
nearly 900% rise in the company's shares.
The firm typically seeks only one board seat at companies and
fills it with Mr. Ubben or President Mason Morfit, unlike other
activist funds that seek bigger representation and tap independent
nominees. Last year, The Wall Street Journal calculated that of the
32 public companies in which ValueAct joined the board, half
changed their chief executives afterward.
ValueAct has been busy lately. Rolls-Royce Holdings PLC said on
Monday that it is having "constructive discussions" with ValueAct,
following the engine maker's disclosure that the investment firm
had taken a 5.4% stake in the company worth about $866 million.
Write to Robin Sidel at robin.sidel@wsj.com and Liz Hoffman at
liz.hoffman@wsj.com
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