Engaged Capital LLC, the activist investor founded by Glenn Welling, has amassed a 5.1 percent stake in Volcano Corp., a maker of intravascular ultrasound medical devices.
Engaged has held talks with management and directors of the San Diego-based company since June, Welling said today in a phone interview. The activist fund manager sees Volcano as undervalued and a potential takeover target, regulatory filings today show.
The investor said it wants Volcano to invest in growing its own businesses; has urged changes to management’s compensation structure, and recommended the company spend at least $200 million buying back shares. A convertible debt sale from December left the company with about $500 million cash, fueling investor concerns management would pursue growth via acquisitions, Welling said.
“It would be very hard to find an acquisition or inorganic growth opportunity that delivered” returns close to a sizeable stock repurchase and investing in existing strong product lines, Welling said. Those steps would boost the shares and may draw the attention of potential bidders for Volcano.
“Volcano is a very attractive acquisition candidate for the large medical device players within the cardiac space,” Welling said. “We don’t believe they should sell themselves today. Once the stock is more fairly valued, and once they’ve achieved some of the targets,” it should pursue a sale.
Volcano rose 7.1 percent to $20.29 at the close in New York. The shares have declined 14 percent this year.
Volcano spokesmen didn’t respond to e-mails and phone calls seeking comment. The company’s leadership is “committed to taking substantive actions to improve its share price,” Newport Beach, California-based Engaged said today in the filing.
“Constructive talks continue,” Welling said.
Activist funds generally acquire equity stakes in companies and try to force corporate management and directors to make changes that boost share values and investor returns.
Welling, a former partner at Ralph Whitworth’s Relational Investors LLC, formed Engaged with other Relational managers last year, backed by Grosvenor Capital Management LP. Engaged pursues “constructive” activism, working with management to make changes that boost shareholder value, according to its website.