Thursday, January 21st, 2010
Three Heated Activist Battles to Watch
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Silicon Storage Technology, Inc. (NASDAQ:SSTI), Genzyme Corporation (NASDAQ:GENZ), and Kraft Foods Inc. (NYSE:KFT) are three activist targets in recent weeks that have come to a crucial juncture that could unlock shareholder value.
Riley Fights SSTI Buyout Transaction
Silicon Storage Technology, Inc. (SSTI), a supplier of flash memory semiconductor devices, announced plans to merger with Technology Resource Holdings on November 13, 2009 in exchange for $2.10 per share in cash. Since then, several investors have come out against the transaction, and shares have rallied past the premium price to $2.72 per share.
Riley Investment Management formed The SST Full Value Committee in an attempt to stop the transaction, saying that the buyout significantly undervalues the company. The hedge fund believes that the offer does not take into account growth potential from any future restructuring or value-enhancing activities given its low premium to the prior market price.
To stop the transaction from being consummated, The SST Full Value Committee has filed a Schedule 14A proxy filing. Meanwhile, investors have pushed the stock well above the offer price, which could put pressure on Technology Resource Holdings to increase its offer. Combined, this has led to a possibility that the price could be raised in the near-term.
Genzyme Sides with Activist Investor
Genzyme Corporation (GENZ), a biotechnology company, announced an agreement with activist investor Relational Investors LLC in a sign of support for management as they attempt to rebound several production setbacks. These setbacks include the company’s failure to increase the production of their Pompe treatment drug, Monzyme, for several years.
Relational Investors, which owns a 4% stake in the firm, also noted the company’s problems with production in its Alston Massachusetts plant that resulted in temporary shutdowns due to viral contamination and failed regulatory inspections. Under the new agreement, the company agreed to appoint Relational Investor’s Ralph Whitworth to the board of directors.
The appointment also comes after another activist investor, Carl Icahn, took a stake in the company. Combined, investors are hoping that these investors work to overhaul the company and restore it to a proper valuation.
Ackman and Buffett Battle Over Target
Kraft Foods Inc. (KFT), one of the world’s most popular packaged food companies, announced that it would raise its offer to acquire Cabury plc (CBY) after a heated battle. While activists Bill Ackman and Warren Buffett both believe the firm is undervalued, Buffett argued that the firm should not acquire Cadbury and Ackman argued on behalf of the transaction.
Kraft raised its bid to $19.6 billion, which caused quite a stir in the investment community. Warren Buffett said that the transaction was a “bad deal” and questioned how CFO Irene Rosenfeld chose to pay for it. Meanwhile, Fitch downgraded the firm to BBB- after the revised offer, anticipating the increased financial leverage of the combined companies.
Whether or not this merger turns out to be successful remains to be seen, but both Buffett and Ackman remain convinced that shares are undervalued.
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-- Written by Simon Monger
