Shares of Hain Celestial Group (NASDAQ: HAIN) jumped as much as 11.5% in early trading Friday on news that private-equity firm Engaged Capital had taken a 10% stake in the packaged foods and poultry producer earlier this year. At the time of Engaged Capital's most recent SEC 13D filing, the company owned 8.47 million shares, making Hain by far the biggest equity holding disclosed in its portfolio.
Valued at more than $340 million, the stake in Hain made up about 49% of Engaged Capital's stock portfolio. As of 2:50 p.m., Hain was trading up 9.1% on the day.
Hain finally filed its financial results for four unreported quarters on June 22, after numerous delays tied to accounting issues. And while the company said the accounting issues had been resolved, and also stated that they had caused no material problems for the company, we learned that the business hasn't performed as well in recent quarters as it had in the past.
Management has a plan in place to start turning things around, but the early expectations are that Engaged Capital's intention is to push for seats on the company's board of directors, and to pressure the board to to consider putting the company up for sale.
Engaged bought its shares of Hain in the first quarter (it was able to get approval to keep its investment confidential for a period of time), so it's possible that the private equity group's investment is a losing bet so far, with the company's shares still down from where they were at the beginning of the year:
Either way, it's not clear whether Engaged Capital's intention will be to try and force Hain to explore a quick sale, or if it plans to work with management on its long-term plan to drive down expenses and invest in its most popular brands in order to grow market share.
If Engaged Capital is able to influence the company's board in a significant way, investors could see Hain sold -- almost certainly at a nice premium to the current price -- to a bigger competitor. Alternatively, Engaged may simply want to see the company do the things that management has already said it intends to do: Cut expenses, streamline operations, and invest in brand growth.
For long-term shareholders, there's really not much to do at this point. If the situation were to devolve into an outright battle for control of the company -- particularly if such a conflict were to lead to the ouster of founder and CEO Irwin Simon -- then it would be wise to reevaluate the investment thesis.
But unless something happens that fundamentally changes the company or its leadership, it's probably best to just sit tight.
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