Activist investor can look to a recipe for success to increase the value of US Food Holdings

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Company: US Food Holdings Corp. (USFD)

Activist: Sachem Head Capital

Percentage of ownership: 5.13%

Average cost: $ 33.71

Activist comment: Sachem Head was founded in 2013 by Scott Ferguson, the first investment professional hired at Pershing Square where he worked for nine years. Sachem Head has a solid history of investing in value, but we think they really found their activist pace in 2020 with their investment in Olin. Scott Ferguson served on the board of directors of Olin – the first time on the board of a public company he held in a non-group investment – and created considerable value where he remains a member of the board of directors. His next 13D activist was at Elanco, where he again took a seat on the board and is creating value there. Taking seats on the board means both commitment and contribution and this philosophy and style really pays off for Sachem Head.

What is happening?

Sachem Head Capital took a 5.13% position for investment purposes.

In the wings:

Sachem Head subtly points out in his 13D file that he might be interested in a seat on the board. He indicates in the file that Sachem Head entered into an agreement with Bernardo Hees who agreed to serve as an advisor to Sachem Head and a potential candidate for the post of director. This makes sense, as Sachem Head founder Scott Ferguson already sits on the boards of two public companies and Hees has extensive industry and operational experience.

But to really understand Sachem Head’s thesis here, we have to go back to August 2015, when Trian filed a 13D on USFD competitor Sysco, and Nelson Peltz took a seat on the board creating significant value for shareholders by improving operating margins and focusing more on growing Sysco. margin companies. Three years later, in 2018, Sachem Head took a 2% position in the USFD, saying in a letter to investors that the USFD could benefit from many of the same actions Sysco took at Trian’s request. Sachem Head added, “With the help of an activist shareholder, Sysco has dramatically increased profitability by improving pricing discipline and placing more emphasis on high-margin private label products and smaller customers. lucrative restaurants … US Foods can implement many of the same initiatives while also innovating in other areas, such as technology and central replenishment. ”In 2018, Sachem Head predicted that the company could generate $ 3 earnings per share in 2020 with a share price of $ 45. Reduced to 2020, and gross and operating margins are worse than in 2018, earnings per share is $ 1.66 and the stock price share is $ 36.08, so there is more work to be done and more opportunities for value creation.

However, while Scott Ferguson has extensive activist experience, he already sits on the boards of two public companies and lacks the operational experience of Nelson Peltz de Trian (few activists do). Thus, he judiciously teamed up with Hees who has extensive operating experience. Hees is a former partner of 3G Capital and former CEO of Kraft Heinz and HJ Heinz from 2013 to 2019. Interestingly, Nelson Peltz was a director of HJ Heinz and served on the special committee of the board that negotiated the acquisition. by Heinz by 3G Capital. in 2013. Two years later, Peltz launched an activist campaign at Sysco. Two years after Hees left Heinz, he started one with Sachem Head at Sysco’s competitor USFD. The blueprint for this campaign has already been drawn up and Sachem Head seems to have recruited the right players for the creation of shareholder value. The only question left is does the company see it that way?

Ken Squire is the founder and chairman of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments. . US Food Holdings is held in the fund.


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