Starboard Targets Stewart Information With New 9.9% Stake

  • Activist discloses investment in a 13D filing Friday
  • Property-title insurer previously targeted by activists

Stewart Information Services Corp. is being targeted by activist Starboard Value LP, which disclosed a new 9.9 percent stake in the property-title insurer, making it the company’s biggest investor.

Using boilerplate 13D filing language, the hedge fund run by Jeff Smith said it may speak with management, the board, shareholders and other parties, about “potential business combinations or dispositions,” as well as changes to capitalization, ownership structure, board structure, composition, and financial and operational performance.

Title insurers like Stewart Information and its competitors First American Financial Corp. and No. 1 Fidelity National Financial Inc. use their records and public documents to verify a seller is a property’s true owner and that it’s free from liens. The companies collect a premium at the closing of a purchase or a refinancing, and pay costs that may arise if there are disputes over ownership. Title insurance is typically required to finalize mortgages and property transactions.

Voting Rights

Stewart Information ended its dual-class share structure at its April annual meeting, opening up voting rights after being targeted by other activists. Phil Goldstein’s Bulldog Investors went public in February 2015, urging a sale and seeking control of its board. In a settlement announced weeks later, Stewart Information agreed to add an independent director and Bulldog to a standstill.
 
Under Stewart Information’s now defunct dual-class share structure, four directors were elected by the B holders, including members of the company’s founding Morris family. The changes mean all shareholders can vote for all directors at its next annual meeting.

Bulldog’s campaign came a year after the third-largest U.S. title insurer settled a separate activist battle with hedge funds Foundation Asset Management and Engine Capital LP. To resolve that situation, Stewart Information agreed to add two directors, embark on a $70 million share buyback, deliver $25 million in annual cost cuts and begin holding earnings calls.

Yahoo, Depomed

Starboard’s highest profile target, Yahoo! Inc., agreed to sell its core business to AOL web portal-owner Verizon Communications Inc. last month, almost three years after the hedge fund went public with its campaign, and three months after agreeing to put Smith and three aligned directors on its board. They will stay to determine the future of remaining assets, including Yahoo’s large ownership of Alibaba Group Holding Ltd.

Starboard has had a busy year. It’s fighting for a special shareholder meeting to replace the board of Depomed Inc., a developer of oral drug-delivery technologies, and continuing a campaign at retailer Macy’s Inc. Meanwhile, it reached settlements with targets including human-resources company Insperity Inc., chipmaker Marvell Technology Group and security group Brink’s Co. It also filed an activist 13D at network and cyber-security software company Infoblox Inc.

Smith was also elevated to chairman at Advance Auto Parts Inc. in May, after joining the board in November.

New York-based Starboard typically targets small- and mid-cap public companies it considers undervalued, pushing executives and directors for changes such as unit spinoffs and asset sales and often taking board seats.

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