When a large activist investor files a 13D announcing he or she has accumulated a 5% stake in a company and intends to agitate to unlock “shareholder value,” the media goes berserk with coverage. Carl Icahn, Bill Ackman and Nelson Peltz can make a newscaster’s whole day when news is slow.
The coverage usually results in an immediate flurry of buying, leaving individual investors almost no chance to make money by coat tailing the activist.
However, there are plenty of other lesser-known activists that don’t attract the media attention and buying interest, and there is plenty of money to be made by jumping on their bandwagons.
I read 13F filings every day to uncover situations like this. Following certain activist investors has been wildly profitable for me over the years, so it’s a worthwhile expenditure of my time.
It is very easy to set up a search for recent filings on the site and scroll through and read any that look interesting. I also have a Google News alert set up for activist investors, 13F and 13D filings, ensuring that I don’t overlook any potentially profitable situations.
In the past few days, there have been a number of filings that caught my interest.
HIL Stock Offers Quiet Value
Bulldog Investors is run by Phil Goldstein, a former civil engineer and gambler who turned his attentions to the market. For much of his career, he has focused on closed-end funds trading at a discount to net asset value, but he isn’t afraid of an occasional activist campaign against an operating company. And Goldstein has seen success with his activism.
In his latest filing, Goldstein revealed that he now has a 5.52% stake in Hill International (NYSE:HIL). The company provides project management, construction management, construction claims and other consulting services to the buildings, transportation, environmental, energy and industrial markets.
Goldstein has filed for two board seats and wants the board to consider two proposals at the next shareholder meeting. According to his filing, Goldstein thinks the Board of Directors should hire an investment banker to investigate the possibility of a liquidity event to maximize stockholder value for HIL stock. He also thinks the “poison pill” recently adopted by the Board of Directors should be rescinded in the event a cash tender offer is made for all shares of the issuer.
Goldstein started buying HIL stock back in March at about $3.40 per share and crossed the 5% mark to trigger a filing this week with prices around $5.30 per share. Despite that 55% surge, there’s still plenty of upside left. The board of Hill recently voted to turn down a $5.50-per-share cash buyout offer from DC Capital Partners, a private equity firm.
The Board “determined that the proposal substantially undervalues HIL stock given the company’s current strategic plans and prospects for continued growth and stockholder value creation, among other considerations, and therefore that acceptance of the proposal is not in the best interests of the company or its stockholders.”
In other words, they want a lot more money than that.
Hill saw double-digit revenue growth in the previous quarter. The company is in the process of implementing a cost-cutting program that will slash overhead costs by $25 million per year, which could add as much 50 cents to earnings per share going forward. If HIL stock hits the high end of revenue and EBITDA forecasts, the company could be easily worth twice the current price in the type of cash-out transaction Goldstein is advocating.
Following 13F filings is a regular part of my daily activities and it has helped me find some wildly portable special situations. Hill International looks like it has the potential to be another one soon enough.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities, but planned to initiate a position in HIL.