Satellites and Surveys: How a Quant Activist Just Shook Up Lowe's -- Update

By FeaturesDow Jones Newswires

Activist investors are watching from the skies.

When D.E. Shaw & Co. showed up at home-improvement giant Lowe's Cos. seeking to talk about why they thought it was underperforming rival Home Depot Inc., the New York hedge fund was armed with a data set that included an analysis of the two chains' parking lots and number of cars from two years of satellite imagery, according to people familiar with the matter.

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The fund, which invested $1 billion, had accessed the images and counted the cars in each lot to help bolster an argument that Lowe's wasn't attracting enough customers, the people said. The fund also used U.S. census data to map out potential customers and determine the reach of the chains and surveyed thousands of customers.

Friday, it helped shake up the board at Lowe's, a company with an $80 billion market value. Lowe's will add three new directors this year, a pact both sides say was reached amicably after the fund arrived with serious research.

It is the latest sign that even shareholders without a reputation for winning big votes and bruising fights can still gain influence at major U.S. companies. While D.E. Shaw hasn't run a proxy fight, it brought to Lowe's David Batchelder, a pioneer in the field and a former director at Home Depot.

Mr. Batchelder will join the board in March along with Lisa Wardell, chief executive of for-profit education company Adtalem Global Education Inc., formerly known as DeVry. At Lowe's annual meeting, it will also add Brian Rogers, the chairman of T. Rowe Price Group Inc., whose funds last year withheld votes for the election of every Lowe's board member.

In a statement, Lowe's CEO Robert Niblock said he valued the "constructive discussions we have had with the D.E. Shaw group."

The stock rose 3% to $104.38 in recent trading.

D.E. Shaw has historically been a quantitative trading shop, where computers fuel investment decisions based on massive piles of data. Last year, it hired Quentin Koffey from Elliott Management Corp., one of the most aggressive activist firms, to begin to use its resources to push companies to improve performance.

Activists have long been known to do heavy research and show up with white papers expounding on a company's problems and suggesting fixes, one reason CEOs tend to loathe their arrival or view them as a personal attack.

D.E. Shaw assembled information that they felt detailed Lowe's underperformance compared with Home Depot, beyond just a stock price and sales, which were readily apparent, the people said. It surveyed 4,000 customers on their shopping views and found customers raising concerns about availability, the people said. It broke down the census to determine the economic status of people who live near each chain. It detailed online shortfalls.

In the end, D.E. Shaw estimated some $8 billion in additional revenue could be found and nearly $1 billion in costs could be cut, the people said.

In fiscal 2016, Lowe's had $65 billion in revenue, up 10% from the prior year, and expects it to rise 5% this year.

Lowe's executives have already been discussing ways to boost revenue and improve customer results both in stores and online, looking to invest in the products. The company has sought to improve profitability, including on the supply chain. It has closed the gap with Home Depot on comparable sales, but its stock has underperformed its rival over the past year, three years and five years.

--Allison Prang contributed to this article.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

January 19, 2018 16:03 ET (21:03 GMT)

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