Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Big hedge funds win again on PetSmart, Riverbed

Riverbed to be acquired by Thoma Bravo

Another week, another set of wins for activist investors.

On Sunday, pet supply retailer PetSmart agreed to the largest leveraged buyout of the year at $8.7 billion. Hedge fund firm JANA Partners had been pushing for a sale and, with a 9.9 percent stake in the company, appears to be in line for a pay day of about $230 million.

On Monday, enterprise tech company Riverbed Technology said it would sell itself to private equity firm Thoma Bravo for $21 a share. Hedge fund manager Elliott Associates, who also agitated for a sale, owns 9.6 percent of the company, meaning it will likely net about $102 million on the transaction.

Those deals add to the wins by activist hedge funds in 2014. Other notable successes this year include Pershing Square Capital Management's bet on Allergan (which was sold to Actavis and netted Bill Ackman's firm about $2.2 billion); Starboard Value's involvement in Darden Restaurants (it took over the board with all 12 seats, and the stock has gained since); and Icahn Enterprises' play in Family Dollar Stores (the company is in the process of being sold, and Icahn netted a reported $200 million profit).

"Without question, activists and suggestivists have been highlights amid a generally lackluster year for the industry," said Rick Teisch, director of research at hedge fund investor Liongate Capital Management in New York. "Several managers have generated returns far north of equities by pressing lethargic management and/or arming companies with creative ways to enhance shareholder value."

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The Riverbed and PetSmart deals were just what their hedge fund patrons wanted.

"As Riverbed's largest shareholder, we're delighted with this outcome that gives shareholders immediate, premium value," Jesse Cohn, head of U.S.equity activism for Elliott, said in a statement Monday.

Elliott is the second-largest shareholder behind Fidelity, according to data compiled by FactSet, with a position market value of $280 million. Elliott had offered $21 a share for Riverbed itself, a move seen by analysts as a way of spurring a sale.

Activism has become an important strategy for $25 billion Elliott, which also invests in the debt of troubled countries, commodities and real estate, among others, as a so-called "multistrategy" firm.

Elliott successfully pushed for a holding, Compuware, to sell itself in September to Thoma Bravo, the same private equity firm that led the Riverbed buyout. The Attachmate Group, a private software holding company in which Elliott owned a stake, was also bought in September by Micro Focus International.

The firm is also in talks to take seats on the board of Juniper Networks, of which it owns about 9 percent, according to a person familiar with the situation (The Wall Street Journal first reported the news). And Elliott has been pushing for change at EMC Corp., including a potential unit spin-off or even a full sale.

Read MoreJuniper, Elliott Mgmt in board discussions: Report

A spokesman for Elliott declined to comment, but founder Paul Singer wrote in an Oct. 28 letter to clients that he was bullish on Juniper.

"Elliott remains constructive on the position and believes that Juniper will weather the temporary slowdown and emerge with a leaner cost structure and a much smaller share base as a result of aggressive buybacks," Singer wrote. "We think that Juniper is undervalued at current levels, and we have also been in dialogue with management and the board regarding actions that would further drive shareholder value."

JANA, which manages about $10 billion overall and is led by Barry Rosenstein, also pushed for the sale of PetSmart and would appear pleased with the likely result (a spokesman for the hedge fund manager declined to comment).

JANA is the largest shareholder with 9.69 million shares, a 9.8 percent stake. The private equity buyout by BC Partners and several others represents a 39 percent premium on JANA's purchase price this July.

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JANA also scored on a similar deal in March when grocery store chain Safeway, one of its holdings, sold itself to Albertsons for $9.2 billion.

PetSmart sold for $8.2 billion

Despite the high-profile activist wins this year, it's not the best performing hedge fund strategy.

The HFRI Activist Index, which tracks such funds, is up 2.81 percent through November. That compares with an average gain of 3.73 percent across all strategies.

The Elliott Associates LP fund is up an estimated 8.1 percent this year through November, according to performance information obtained by JANA Partners LP gained 3.40 percent over the same period, according to separate materials.