Lowe's Accepts Input From Hedge Fund -- WSJ

By David BenoitFeaturesDow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 20, 2018).

Activist investors are watching from the skies.

Continue Reading Below

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

The fund, which invested $1 billion in Lowe's, had accessed the images and counted the cars to help bolster an argument that the retailer 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 it surveyed thousands of customers.

On Friday, D.E. Shaw helped shake up the board at Lowe's, a company with an $80 billion market value, as the retailer agreed to add three new directors this year.

The agreement, which both sides say was reached amicably after the fund presented in-depth research, is the latest sign that even investment firms 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 enlisted David Batchelder, a pioneer in the home-improvement field and a former director at Home Depot, for its approach to Lowe's.

Mr. Batchelder will join Lowe's board in March along with Lisa Wardell, chief executive of for-profit education company Adtalem Global Education Inc., formerly known as DeVry. At the retailer'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 Chief Executive Robert Niblock said he valued the "constructive discussions we have had with the D.E. Shaw group."

The stock rose 3.5% to $104.95 on Friday.

D.E. Shaw has historically been a quantitative trading shop, where computers drive 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 dissecting a company's problems and suggesting fixes, one reason CEOs tend to loathe their arrival and even view their critiques as a personal attack.

D.E. Shaw assembled information that they thought detailed Lowe's underperformance compared with Home Depot, beyond the more obvious comparison of shares prices and sales, the people said. It broke down the census data to determine the economic status of people who live near each chain. It also surveyed 4,000 customers about their shopping experience, revealing concerns about product availability, the people said. The fund also detailed online shortcomings.

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 at Lowe's, the people said.

Lowe's had $65 billion in revenue in fiscal year 2017, up 10% from the prior year, and expects it to rise 5% in the year ending soon.

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, which is based in Mooresville, N.C., has sought to improve profitability, including on the supply chain. It has closed the gap with Home Depot on same-store sales growth. Still, Lowe's stock has underperformed that of 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 20, 2018 02:47 ET (07:47 GMT)