ELAT - Tracking Jeff Smith's Starboard Value Portfolio - Q3 2022 Update

Summary

• Jeff Smith’s 13F portfolio value decreased from $5.50B to $4.55B this quarter.
• Starboard Value added Wix.com while decreasing ON Semiconductor and Huntsman Corp.
• The largest three individual stock positions are GoDaddy, Aecom, and Humana. They add up to ~34% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Starboard Value's 13F stock portfolio on a quarterly basis. It is based on Jeff Smith's regulatory 13F Form filed on 11/14/2022. The 13F portfolio value decreased ~17% from $5.50B to $4.55B. The holdings are concentrated with recent 13F reports showing around 40 positions, many of which are very small. The largest five stakes are GoDaddy, Aecom, Humana, Willis Towers Watson, and NortonLifeLock. They add up to ~52% of the portfolio. Please visit our Tracking Jeff Smith's Starboard Value Portfolio series to get an idea of their investment philosophy and our last update for the fund's moves during Q2 2022.

Jeff Smith founded Starboard Value in March 2011 after being with Ramius LLC, a subsidiary of the Cowen Group since 1998. His game plan is investing in undervalued companies and then engaging in activism to unlock value.

Note: Regulatory filings show them owning 11.5% of Acacia Research ( ACTG ) and 7.4% of Veritiv ( VRTV ).

New Stakes:

Wix.com ( WIX ) and iShares Russell 2000 Value ETF ( IWN ): WIX is a 4.42% of the portfolio position purchased this quarter at a cost basis of ~$68 per share. The stock currently trades at $78.21. The 1.70% IWN stake was purchased at prices between ~$129 and ~$159 and it is now at ~$140.

Note: Regulatory filings since the quarter ended show them owning ~3.9M shares (6.6% of the business) of WIX. This is compared to ~2.6M shares in the 13F report. The increase was at prices in the high-60s.

Stake Disposals:

GCP Applied Technologies ( GCP ) : The 3.72% of the portfolio GCP stake was established in H1 2019 at prices between ~$22.50 and ~$30. Q1 2020 saw a ~20% stake increase at prices between ~$14.50 and ~$23.75. Since then, the position had stayed steady. Starboard controlled ~9% of the business. Their overall cost-basis was ~$24 per share. Last December, Saint-Gobain agreed to acquire GCP for $32 per share cash and the transaction closed in September.

Note: In June 2020, they won a proxy battle and voted in eight director nominees to GCP's board.

Elanco Animal Health ( ELAN ): The ~2% ELAN position was purchased in Q1 2021 at prices between ~$28 and ~$34.50 and the stock currently trades at $12.83. There was a ~26% selling over the last two quarters at prices between ~$20 and ~$29. The disposal this quarter was at prices between ~$12.40 and ~$21.

Merit Medical Systems ( MMSI ) : MMSI was a small 0.57% of the portfolio position purchased in Q1 2020 at prices between ~$29 and ~$41. Last seven quarters saw a ~85% selling at prices between ~$42 and ~$73. The stock currently trades at ~$70. The remainder stake was disposed this quarter.

Note: Their overall cost-basis was ~$32.50 per share.

Corteva, Inc. ( CTVA ) : CTVA stake was established in Q3 2020 at prices between ~$25 and ~$30. Next quarter saw a ~25% stake increase at prices between ~$29 and ~$40. H1 2021 had seen a one-third stake reduction at prices between ~$38 and ~$50. Last two quarters saw the position sold down to a very small ~1% of the portfolio stake at prices between ~$45.50 and ~$63. The stock currently trades at $59.69. The remainder stake was eliminated this quarter.

Note: Corteva, a May 2019 agriscience spinoff from DowDuPont started trading at ~$27 per share. Last January, Starboard wrote a letter to Corteva's board questioning their reluctance to change leadership and nominated a slate of eight directors for election. Last March, three new independent directors joined Corteva's board as they reached an agreement with Starboard, thereby sidestepping a proxy contest. In June, CEO James Collin Jr. announced plans to retire at the end of this year.

Stake Increases:

iShares Russell 2000 ETF ( IWM ) : The ~1% IWM stake was established in Q2 2020 at prices between ~$105 and ~$150. Q3 2021 saw a ~170% stake increase at prices between ~$212 and ~$231. Last quarter saw the position sold down by ~80% at prices between ~$164 and ~$208. IWM currently trades at ~$176. There was a minor ~2% increase this quarter.

Note: Certain index ETFs along with options on them are frequently traded presumably to hedge other parts of the portfolio.

Stake Decreases:

GoDaddy ( GDDY ) and Willis Towers Watson ( WTW ): The ~13% of the portfolio stake in GDDY is currently the largest position in the portfolio. It was established over the two quarters through Q1 2022 at prices between ~$67 and ~$86 and the stock currently trade at $74.86. Last two quarters have seen only minor adjustments. The large (top five) ~10% WTW position was purchased in Q4 2021 at prices between ~$226 and ~$249 and it is now at ~$247. Last three quarters have seen only minor adjustments.

Note: Regulatory filings since the quarter ended show them owning 11.9M shares (7.7% of the business) of GoDaddy. This is compared to 8.26M shares in the 13F report. The increase was at a cost-basis in the high-60s (some through forward contracts).

Aecom ( ACM ): ACM is currently the second-largest stake in the portfolio at ~11%. It was established during the first three quarters of 2019 at prices between ~$27.50 and ~$38. Q3 2020 saw a ~30% stake increase at prices between ~$35 and ~$42. The stock currently trades at ~$84. Last few quarters have seen minor trimming.

Note: Starboard controls ~5% of the business. They have nominated two independent directors to the board in a mutual agreement with the company.

Humana Inc. ( HUM ) : The large (top three) ~10% of the portfolio stake in HUM was established in Q1 2022 at prices between ~$363 and ~$465 and the stock currently trades at ~$492. Last two quarters saw marginal trimming.

Commvault Systems ( CVLT ) : CVLT is a 4.26% of the portfolio position established in Q1 2020 at prices between ~$30.70 and ~$51.50. The stock currently trades at $64.76. There was a ~11% reduction in Q1 2022 and minor trimming in the last two quarters.

Note: Their overall cost-basis is ~$36 per share. Regulatory filings since the quarter ended show them owning 1.63M shares (3.7% of business) of Commvault. This is compared to 3.66M shares in the 13F report. The reduction was at prices between $58 and $68.

Mercury Systems ( MRCY ) : The 3.37% MRCY position was purchased in Q1 2022 at prices between ~$51 and ~$70 and it is now at $45.33. Last quarter saw a ~10% stake increase while this quarter there was a ~4% trimming.

ON Semiconductor ( ON ) : The 3.35% ON stake was established in Q4 2020 at prices between ~$21.50 and ~$32.50 and the stock currently trades at $62.20. There was a two-thirds reduction over the last three quarters at prices between ~$47 and ~$77.

Note: In October 2020, Jeff Smith said there is opportunity for margin and growth improvement and scope to reduce cyclicality by shrinking manufacturing footprint. He also said it is an attractive takeover target. Last December, two new directors joined ON Semiconductor's board after reaching an agreement with Starboard. Also, Hassane El-Khoury was named President and Chief Executive Officer.

Huntsman Corp. ( HUN ): HUN is currently at 2.77% of the portfolio. It was established in Q3 2021 at prices between ~$24 and ~$30. There was a ~55% stake increase next quarter at prices between ~$30 and ~$35. Last two quarters saw a ~70% reduction at prices between ~$24 and ~$38. The stock currently trades at $29.19.

Enovis Corporation ( ENOV ), previously Colfax: The ENOV stake was reduced by ~78% to a small stake last quarter at prices between ~$55 and ~$71. The stock is now at $56.43. This quarter saw further selling and the stake is now very small at 0.59% of the portfolio.

Note: Colfax spun off ESAB Corporation ( ESAB ) and renamed itself Enovis in a transaction that closed in April. Colfax shareholders received one share of Enovis and one share of ESAB for every three shares of Colfax held.

ACI Worldwide ( ACIW ) : ACIW is now a small 0.56% of the portfolio position. It was established in Q1 2020 at prices between ~$22 and ~$38.50. The stake was increased over the next three quarters at around the same price range. There was a ~85% reduction over the last three quarters at prices between ~$20.50 and ~$31.50. The stock currently trades at $26.11.

Note: Their overall cost-basis is ~$27.60 per share. In December 2020, Starboard sent a letter to ACI's board urging a sale of the business and indicating disappointment about the standalone plan conveyed in the Analyst Day presentation. Last February, an agreement was reached with the nomination of two independent directors to the board.

Kept Steady:

Gen Digital ( GEN ), previously NortonLifeLock: GEN is a large 8.50% of the portfolio position first purchased in Q3 2018 at prices between ~$19 and ~$22. Q1 2019 saw a ~50% stake increase at around the same price range. That was followed with a ~20% stake increase in Q3 2019 at prices between ~$21 and ~$26. Next quarter saw a ~40% selling at prices between ~$22.70 and ~$26. There was another ~20% selling in Q2 2021 while this quarter saw a ~15% stake increase. The stock is now at $21.87.

Note: Their overall cost-basis is much lower than what is implied by the quoted prices above as it does not account for the $12 special dividend paid out in Q1 2020.

Papa John's International ( PZZA ) : Starboard's investment in Papa John's goes back to a ~$250M cash infusion through convertible preferred stock made in February 2019. In May 2021, ~30% of the preferred stock was bought back by the company at ~$190M while the rest were converted to 3.46M shares of common stock. The stock currently trades at $82.05 compared to the conversion price of $50.06. There was a ~20% reduction in Q3 2021 at prices between ~$114 and ~$122. They still control ~7.6% of the business.

Green Dot Corp. ( GDOT ) : GDOT is a 2.21% of the portfolio position established in Q1 2020 at prices between ~$18.50 and ~$36.20. Next quarter saw a ~11% trimming while in Q1 2021 there was a ~20% stake increase at prices between ~$46 and ~$60. The stock currently trades at $16.70. Their overall cost-basis is ~$32 per share.

Note: they have a ~13% economic stake in the business (includes cash-settled total return swaps).

Pediatrix Medical Group ( MD ), previously MEDNAX : MD is a 2.15% of the portfolio stake built in Q4 2019 & Q1 2020 at prices between ~$9.40 and ~$27.70. Next quarter also saw a minor increase. Since then, the stake had remained steady. Q3 2021 saw a ~30% selling at ~$32 per share. The stock currently trades at $15.26.

Note: Starboard controls ~7% of the business. Their overall cost-basis is ~$22.60. In December 2019, Starboard nominated a majority slate of directors. In July 2020, the CEO and five directors were replaced in an agreement with the company. The agreement also called for the sale of the radiology solutions business. That business was sold for ~$885M in December 2020.

Cyxtera Technologies ( CYXT ): Starboard Value was the sponsor of the SPAC Starboard Value Acquisition that had a $360M IPO in September 2020. In February 2021, they announced a $3.4B EV deal to merge with Cyxtera, a data-center business spun-out from Lumen Technologies (CenturyLink at the time). The deal closed last July. Starboard's overall cost-basis is ~$7.25 per share. CYXT currently trade at $2.16. There was a ~25% stake increase in Q1 2022 at prices between ~$10.60 and ~$13.30. They control ~15% of the business.

LivePerson ( LPSN ) : The 1.45% LPSN position was purchased in Q1 2022 at prices between ~$18 and ~$36 and the stock currently trades at $11.07. Last quarter saw a ~9% stake increase.

Note: They have a ~9.4% ownership stake in LivePerson.

Below is a spreadsheet that shows the changes to Jeff Smith's Starboard Value 13F portfolio holdings as of Q3 2022:

For further details see: