Jeff Smith’s Starboard Value Portfolio – Q2 2022 Update

This article is part of a series that provides an ongoing analysis of the changes made to Starboard Value’s 13F stock portfolio on a quarterly basis. It is based on Jeff Smith’s regulatory 13F Form filed on 8/12/2022. The 13F portfolio value decreased ~27% from $7.54B to $5.50B. The holdings are concentrated with recent 13F reports showing around 40 positions, many of which are very small. The largest five stakes are GoDaddy, AECOM, Humana, Willis Towers Watson, and NortonLifeLock. They add up to ~43% of the portfolio. Please visit our Tracking Jeff Smith’s Starboard Value Portfolio series to get an idea of their investment philosophy and our last update for the fund’s moves during Q1 2022.

Jeff Smith founded Starboard Value in March 2011 after being with Ramius LLC, a subsidiary of the Cowen Group since 1998. His game plan is investing in undervalued companies and then engaging in activism to unlock value.

Note: Regulatory filings from earlier this month show them owning 5.17M shares of Wix.com (WIX). The net cost-basis was ~$68 per share. The stock currently trades at $72.28.

Stake Disposals:

Cerner Corporation: The 4.41% Cerner stake was established in Q1 2019 at prices between ~$52 and ~$58. Q2 & Q3 2020 saw a roughly one-third reduction at prices between ~$62 and ~$73. There was a ~40% stake increase in Q2 2021 at prices between ~$72 and ~$81. Oracle (ORCL) acquired Cerner in a $95 per share all-cash deal that closed in June.

Note: in April 2019, an agreement was reached with Starboard whereby four new directors were appointed to Cerner’s board. Cerner also committed to adjusted operating margin targets as well as an increased share repurchase authorization.

Stake Increases:

GoDaddy (GDDY) and Willis Towers Watson (WTW): The 10.59% of the portfolio stake in GDDY is currently the largest position in the portfolio. It was established over the last two quarters at prices between ~$67 and ~$86 and the stock currently trade at $70.70. There was a minor ~2% stake increase this quarter. The large (top five) ~8% WTW position was purchased in Q4 2021 at prices between ~$226 and ~$249 and it is now below that range at ~$204. There were minor increases in the last two quarters.

NortonLifeLock (NLOK), previously Symantec: NLOK is a large 7.66% of the portfolio position first purchased in Q3 2018 at prices between ~$19 and ~$22. Q1 2019 saw a ~50% stake increase at around the same price range. That was followed with a ~20% stake increase in Q3 2019 at prices between ~$21 and ~$26. Next quarter saw a ~40% selling at prices between ~$22.70 and ~$26. There was another ~20% selling in Q2 2021 while this quarter saw a ~15% stake increase. The stock is now at $20.52.

Note: Their overall cost-basis is much lower than what is implied by the quoted prices above as it does not account for the $12 special dividend paid out in Q1 2020.

Mercury Systems (MRCY) and LivePerson (LPSN): The 4.61% MRCY position was purchased last quarter at prices between ~$51 and ~$70 and it is now at ~$41.55. This quarter saw a ~10% stake increase. The 1.80% LPSN position was purchased last quarter at prices between ~$18 and ~$36 and the stock currently trades at $9.26. This quarter saw a ~9% stake increase.

Note: They have a ~7.4% ownership stake in Mercury Systems and a ~9.4% ownership stake in LivePerson.

Stake Decreases:

AECOM (ACM): ACM is currently the second-largest stake in the portfolio at 8.33%. It was established during the first three quarters of 2019 at prices between ~$27.50 and ~$38. Q3 2020 saw a ~30% stake increase at prices between ~$35 and ~$42. The stock currently trades well above those ranges at $67.37. Last few quarters have seen minor trimming.

Note: Starboard controls ~5% of the business. They have nominated two independent directors to the board in a mutual agreement with the company.

Humana Inc. (HUM) and Kohl’s Corp. (KSS): The large 8.17% of the portfolio stake in HUM was established last quarter at prices between ~$363 and ~$465 and the stock currently trades at ~$487. There was marginal trimming this quarter. KSS stake was established last quarter at prices between ~$47 and ~$64. It was reduced by ~85% to a very small 0.35% of the portfolio stake this quarter at prices between ~$29 and ~$61. It now goes for $25.70.

ON Semiconductor (ON): The 5.14% ON stake was established in Q4 2020 at prices between ~$21.50 and ~$32.50 and the stock currently trades at $64.29. There was a ~26% selling over the last two quarters at prices between ~$50 and ~$71.

Note: In October 2020, Jeff Smith said there is opportunity for margin and growth improvement and scope to reduce cyclicality by shrinking manufacturing footprint. He also said it is an attractive takeover target. Last December, two new directors joined ON Semiconductor’s board after reaching an agreement with Starboard. Also, Hassane El-Khoury was named President and Chief Executive Officer.

Commvault Systems (CVLT): CVLT is a 4.35% of the portfolio position established in Q1 2020 at prices between ~$30.70 and ~$51.50. The stock currently trades at ~$51.80. There was a ~11% reduction last quarter and marginal trimming this quarter.

Note: Starboard controls ~8.5% of the business. Their overall cost-basis is ~$36 per share.

Huntsman Corp. (HUN): HUN is currently at 4.28% of the portfolio. It was established in Q3 2021 at prices between ~$24 and ~$30. There was a ~55% stake increase next quarter at prices between ~$30 and ~$35. This quarter saw a similar reduction at prices between ~$27 and ~$38. The stock currently trades at $24.12.

ACI Worldwide (ACIW): ACIW is a 2.45% of the portfolio position established in Q1 2020 at prices between ~$22 and ~$38.50. The stake was increased over the next three quarters at around the same price range. There was a ~42% reduction over the last two quarters at prices between ~$24 and ~$35.50. The stock currently trades at $20.50.

Note: Their overall cost-basis is ~$27.60 per share. In December 2020, Starboard sent a letter to ACI’s board urging a sale of the business and indicating disappointment about the standalone plan conveyed in the Analyst Day presentation. Last February, an agreement was reached with the nomination of two independent directors to the board.

Elanco Animal Health (ELAN): The ~2% ELAN position was purchased in Q1 2021 at prices between ~$28 and ~$34.50 and the stock currently trades at $12.79. There was a ~26% selling over the last two quarters at prices between ~$20 and ~$29.

Corteva, Inc. (CTVA): CTVA stake was established in Q3 2020 at prices between ~$25 and ~$30. Next quarter saw a ~25% stake increase at prices between ~$29 and ~$40. H1 2021 had seen a one-third stake reduction at prices between ~$38 and ~$50. Last two quarters saw the position sold down to a very small ~1% of the portfolio stake at prices between ~$45.50 and ~$63. The stock currently trades at $57.26.

Note: Corteva, a May 2019 agriscience spinoff from DowDupont started trading at ~$27 per share. Last January, Starboard wrote a letter to Corteva’s board questioning their reluctance to change leadership and nominated a slate of eight directors for election. Last March, three new independent directors joined Corteva’s board as they reached an agreement with Starboard, thereby sidestepping a proxy contest. In June, CEO James Collin Jr. announced plans to retire at the end of this year.

iShares Russell 2K ETF (IWM): The ~1% IWM stake was established in Q2 2020 at prices between ~$105 and ~$150. Q3 2021 saw a ~170% stake increase at prices between ~$212 and ~$231. This quarter saw the position sold down by ~80% at prices between ~$164 and ~$208. IWM currently trades at ~$165.

Note: Certain index ETFs along with options on them are frequently traded presumably to hedge other parts of the portfolio.

Enovis Corporation (ENOV), previously Colfax: The ENOV stake was reduced by ~78% to a small 0.91% of the portfolio stake this quarter at prices between ~$55 and ~$71. The stock is now at $46.25.

Note: Colfax spun off ESAB Corporation (ESAB) and renamed itself Enovis in a transaction that closed in April. Colfax shareholders received one share of Enovis and one share of ESAB for every three shares of Colfax held.

Merit Medical Systems (MMSI): MMSI is a 0.57% of the portfolio position purchased in Q1 2020 at prices between ~$29 and ~$41. Last seven quarters saw a ~85% selling at prices between ~$42 and ~$73. The stock currently trades at $55.

Note: Their overall cost-basis is ~$32.50 per share.

Kept Steady:

Cyxtera Technologies (CYXT): Starboard Value was the sponsor of the SPAC Starboard Value Acquisition that had a $360M IPO in September 2020. In February 2021, they announced a $3.4B EV deal to merge with Cyxtera, a data-center business spun-out from Lumen Technologies (CenturyLink at the time). The deal closed last July. Starboard’s overall cost-basis is ~$7.25 per share. CYXT currently trade at $4.31. There was a ~25% stake increase last quarter at prices between ~$10.60 and ~$13.30. They control ~15% of the business.

Papa John’s International (PZZA): Starboard’s investment in Papa John’s (PZZA) goes back to a ~$250M cash infusion through convertible preferred stock made in February 2019. In May 2021, ~30% of the preferred stock was bought back by the company at ~$190M while the rest were converted to 3.46M shares of common stock. The stock currently trades at $75.38 compared to the conversion price of $50.06. There was a ~20% reduction in Q3 2021 at prices between ~$114 and ~$122. They still control ~7.6% of the business.

GCP Applied Technologies (GCP): The 3.72% of the portfolio GCP stake was established in H1 2019 at prices between ~$22.50 and ~$30. Q1 2020 saw a ~20% stake increase at prices between ~$14.50 and ~$23.75. Since then, the position has stayed steady.

Note 1: Starboard controlled ~9% of the business. Their overall cost-basis was ~$24 per share. Last December, Saint-Gobain agreed to acquire GCP for $32 per share cash and the transaction closed yesterday.

Note 2: In June 2020, they won a proxy battle and voted in eight director nominees to GCP’s board.

Green Dot Corp. (GDOT): GDOT is a 2.42% of the portfolio position established in Q1 2020 at prices between ~$18.50 and ~$36.20. Next quarter saw a ~11% trimming while in Q1 2021 there was a ~20% stake increase at prices between ~$46 and ~$60. The stock currently trades at $18.30. Their overall cost-basis is ~$32 per share.

Note: they have a ~13% economic stake in the business (includes cash-settled total return swaps).

Pediatrix Medical Group (MD), previously MEDNAX: MD is a 2.26% of the portfolio stake built in Q4 2019 & Q1 2020 at prices between ~$9.40 and ~$27.70. Next quarter also saw a minor increase. Since then, the stake had remained steady. Q3 2021 saw a ~30% selling at ~$32 per share. The stock currently trades at $16.84.

Note: Starboard controls ~7% of the business. Their overall cost-basis is ~$22.60. In December 2019, Starboard nominated a majority slate of directors. In July 2020, the CEO and five directors were replaced in an agreement with the company. The agreement also called for the sale of the radiology solutions business. That business was sold for ~$885M in December 2020.

Below is a spreadsheet that shows the changes to Jeff Smith’s Starboard Value 13F portfolio holdings as of Q2 2022: