Since Starboard Value LP was spun off as a separate hedge fund just over two years ago it has been fast gaining a reputation for aggressive shareholder activism, pushing for change in household names including AOL and Office Depot Inc .
Initially investing in small cap value companies, Starboard quickly gained a reputation in Silicon Valley as a corporate raider, targeting mostly technology companies including Agilysys Inc , Openwave Systems and Extreme Networks Inc among several others.
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But more recently the New York-based hedge fund has had an appetite for more diverse and larger companies, with its latest campaign focused on the world's largest pork producer Smithfield Foods Inc , in a move that could scupper China's biggest takeover of an American company.
Consistent with its strategy - pushing for asset sales and spin offs to board and management shake-ups - the fund is pushing Smithfield to explore a breakup rather than go ahead with the planned $4.7 billion sale to Chinese meat company Shuanghui International.
The activist investor, now Smithfield's biggest shareholder with a 5.7 percent stake, said Smithfield could be worth 29 percent to 64 percent more than the $34 per share offered by Shuanghui if it split up and shopped its hog production, pork and international units separately.
"Some activists have a massive repertoire of strategies they use, but Starboard likes to get companies back to what they're good at, such as splitting off business divisions that are non core," said Kerry Pogue, managing director at Activist Insight, a data provider that tracks activism.
Starboard, which was spun off from Cowen and Company's asset management arm Ramius LLC in March 2011, is led by CEO Jeffrey Smith, who has become the face and name behind the fund's multiple proxy contests. He was not available for comment.
A major focus is board representation. This year, Starboard launched seven proxy contests, of which six involved efforts to gain board seats. For example in March Starboard nominated six members, including former Home Depot CEO Robert Nardelli, for the 10-member Office Depot board.
The investor cited the lack of retail experience among current board members and stressed the need to reconstitute the board whether or not its proposed merger with smaller rival OfficeMax Inc takes place.
Its success stems largely from its concentrated portfolio, owning shares in 24 companies worth a total of $1.1 billion as of March 31, and its behind the scenes due diligence, said investment bankers and other activists.
Bankers with knowledge of Starboard's strategy say the fund will speak to a host of sources before taking a position, including sector analysts, industry peers, proxy solicitors, litigators, regulators and deal makers.
Smith and his 12-member investment team, which includes former traders, research analysts and investment bankers, will also speak with management in advance of filing with regulators that it has bought 5 percent or more in a company, the sources said.
"Everybody thinks they do their work and they have a serious approach to their diligence and investing. They have a good reputation among activists," said a shareholder activist that preferred anonymity.
An investment banker that requested anonymity because he has worked with Starboard said "Jeff Smith is one of the smarter guys that you will meet... and over the last couple of years Starboard has been the most active of all the activists."
Smith began his career in the mergers and acquisitions department at Soci��t�� G��n��rale and is currently a member of the board of hair salon chain Regis Corp . Although the fund has seen its share of success in recent years, it has also been met with challenges.
During its campaign last year against AOL, Starboard maintained that AOL Chief Executive Tim Armstrong and his management had failed with its strategy to double down on transforming itself into a media and entertainment powerhouse, citing AOL's costly investment in its network of local news sites called Patch and losses at its display advertising business.
But the Internet company's institutional shareholders did not agree. Instead of voting with Starboard's proposed director candidates to AOL's board last year, which included Smith, they decided to re-elect all of AOL's director candidates during the annual shareholder meeting - an unusual defeat for an activist.
"Even if they technically lost AOL, they made a ton of money and got the company to do some stuff that was incredibly valuable," the activist investor that preferred anonymity said, referring to AOL's eventual patent sale which resulted in $1.1 billion returned to investors.
(Reporting by Nadia Damouni and Olivia Oran; Editing by Jilian Mincer, Martin Howell and Bernard Orr)