Relational Investors LLC
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DESCRIPTION:
Date updated:04-20-2007
Relational is an activist fund managed by long time activism veteran Ralph Whitworth. Founded in 1996 the fund has $6 Billion in assets under management, most of which is from its seed-capital provider CALPERS and other pension funds. The fund is run like a Hedge Fund, but unlike most Hedge Funds it only charges a 1% management fee and only gets paid the standard 20% incentive fee on returns above what the S&P 500 provides. According to Barron's, the fund has averaged 18.67% a year since its inception.
The fund tends to take highly concentrated bets, using its large purchases of shares in a company to exert influence on management and get its own board members elected. Generally the fund invests in companies with strong businesses and strong cash flows that it deems are trading below their intrinsic value because management has not taken the proper steps.
According to a 2/19/07 cover story in Barron's, the fund takes the following steps when trying to influence change in a company:
"The process, which Whitworth euphemistically calls "engagement," follows a precisely calibrated pattern. First, Relational establishes a "toehold" stake in a target of around $100 million or so. Then Whitworth contacts the company, requesting a meeting with management and directors to present Relational's list of proposals to boost shareholder returns.
If the target company proves receptive, Relational quickly will build its position to 5% to 10% of the stock. If the company rejects Relational's overtures, however, the firm typically will act on its always implied threat of mounting a proxy fight and going public with its proposals. Relational adds to its position in a recalcitrant company only as it is able to ratchet up pressure and cause the target to give ground.
Relational often seeks two board seats. "That way, David or I can always have a second to any of our proposals, thus forcing a board vote and making the issue a matter of record," Whitworth says. Yet they would prefer to effect change without going public or forcing their way onto the board. Confrontation, as Whitworth sees it, only leads to additional time and expense."
The Fund also pushes for large buybacks and dividends to shareholders.
Whitworth is a graduate of the University of Nevada at Reno and Georgetown Law School. After law school he worked for T. Boone Pickens' Mesa Petroleum. In1986 he became the head of United Shareholders Association, a lobbying group started by Pickens to promote corporate democracy.
Note: Sold entire stake of CEN in April of 2007
As of 12/31/06
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SOV
N/a - $2.23
- 0.00
- $2.23
In a 2/19/07 cover story Barron's had the following to say: "Nardelli's successor, Frank Blake, has been in touch with Whitworth in recent weeks, even meeting with him in late January at a hotel in Los Angeles. Among other things, the company agreed to give Relational a seat on the Home Depot board, filled by Whitworth's partner, David Batchelder, 57, to head off a threatened proxy fight. Last week, Home Depot appeared to cave in to a key Whitworth demand: that it consider splitting off or selling its wholesale-supply unit, which Nardelli had established to sell construction goods to commercial builders and government buyers." 12/5/06: In an amended 13D filing on Sovereign Bancorp Inc. (NYSE: SOV) after the close, 6.7% holder Relational Investors disclosed a letter sent to Citigroup Michael Diana refuting speculation of a deal between Relational Investors and Banco Santander (NYSE: STD) on a sale of the company. Note: Sold entire position of CEN on 4/10/07 From streetinsider.com
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HD
Home Depot Inc - $26.08
- +1.76%
- $25.87
In a 2/19/07 profile in Barron's the following was said about Relational s involvement in the ousting of former HD CEO Robert Nardelli: "Nardelli's successor, Frank Blake, has been in touch with Whitworth in recent weeks, even meeting with him in late January at a hotel in Los Angeles. Among other things, the company agreed to give Relational a seat on the Home Depot board, filled by Whitworth's partner, David Batchelder, 57, to head off a threatened proxy fight. Last week, Home Depot appeared to cave in to a key Whitworth demand: that it consider splitting off or selling its wholesale-supply unit, which Nardelli had established to sell construction goods to commercial builders and government buyers." Commenting on Home Depot (NYSE: HD) to Bloomberg News on 12/18/06, Relational Investors' Ralph Whitworth said he wants at least two seats on the board and thinks the stock is 50% undervalued. Whitworth doesn't necessarily want a new Home Depot CEO. Whitworth advice to Home Depot is to "mind the stores." Earlier today Home Depot disclosed Relational Investors' proposal to appoint a special committee of independent directors to evaluate the strategic direction of the Company, the performance of management and strategic alternatives for the Company. The company opposes the proposal but will meet with the investment firm. From streetinsider.com
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PRU
Prudential Fincl - $45.38
- +1.66%
- $43.87
According to Barron's, Whitworth had this to say regarding the company: "We love the company because they have taken our advice on capital allocation, board structure and executive compensation...The company has done a great job of dumping underperforming units to fatten its cash flow and return on equity, and is now in the sweet spot of life- insurance and retirement-industry products."
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UNM
Unum Group - $19.53
- +1.72%
- $18.87
4/3/07 In an amended 13D filing after the close Friday on Unum Group (NYSE: UNM), Relational Investors disclosed a 7.49% stake (25.7 million shares) in the company. This is up from the 6.21% stake (21.3 million shares) the firm disclosed in the original 13D filing in mid-March.
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S
Sprint Nxtel Cp - $2.85
- +0.71%
- $2.83
Relational announced on 4-12-07 it took a 1% position in Sprint Nextel.
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NSM
Natl Semiconducto - $13.19
- -1.05%
- $13.27
No Analysis added
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BAX
Baxter Intl Inc - $55.12
- +0.51%
- $54.68
No Analysis added
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SPY
S&p Dep Receipts - $107.13
- +0.26%
- $106.26
No Analysis added
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