The Morning Brief: Hedge Fund Threatens Proxy Fight at Hain Celestial

July 03, 2017  

Engaged Capital has taken a big stake in the organic foods company and submitted seven candidates to be elected to its board.

Shares of Hain Celestial surged 8.6 percent, to close at $38.82, after activist hedge fund firm Engaged Capital disclosed a 9.9 percent in the organic foods company and said it submitted seven candidates to be elected to its board at its next annual meeting. The hedge fund firm also warned it may take some other undefined action in the future to boost the company’s stock value. On June 22, Hain finally filed four financial reports that were past due after completing an internal accounting review and audit process for the fiscal year that ended on June 30, 2016.

"The accounting review is complete, and we are pleased to report our financial results, which reflect no material changes to any prior reported period," said Irwin Simon, founder, president and chief executive officer, in a press release. "We have also implemented greater and more effective internal controls and enhanced oversight for our financial reporting and business units."

In a note to clients sent Friday, UBS points out that earlier, Engaged Capital’s 9.6 percent stake in Boulder Brands quickly resulted in the company being acquired by Pinnace Foods. "We are not surprised to learn of activist involvement in Hain given the company’s audit review/SEC investigation, execution missteps and portfolio complexity of non-synergistic businesses," UBS states. It adds that Hain’s fiscal 2018 cash flow guidance "is a stretch amid price gaps, industry consolidation and rising private label risks."

On the other hand, it acknowledges that Hain has a handful of differentiated brands that could grow to become more lucrative multi-faceted brands under strong stewardship. Even so, it maintains its sell recommendation and its $31 price target. It says its upside case brings the valuation to $46, while its downside case is $25 per share.

Separately, Hain named James Langrock chief financial officer.

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Maverick Capital participated in the $28 million Series C funding of Science Exchange, a private research and development outsourcing marketplace. In March 2016, Maverick also led a $25 million funding round.

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Former hedge fund manager Jeffrey Vinik and the owner of the Tampa Bay Lightning hockey team participated in the $15 million Series C financing of Super League Gaming, which hosts recreational video game league events in movie theaters.

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UBS raised its price target on hedge fund favorite Constellation Brands from $183 to $198, noting that the distilling giant’s first quarter results included "surprisingly strong gross margin performance." The bank adds that it expects less cash flow margin expansion over the balance of the fiscal year for a variety of reasons, including the recent appreciation of the peso and increasing plant headcount. However, UBS stresses that Constellation has been conservative "in framing these margin headwinds."

At the end of the first quarter, several hedge funds ranked among the top-ten holders, including Lone Pine Capital, which counted the stock as its fourth-largest U.S. long; Soroban Capital Partners; and Third Point, which reported the stock as its third-largest U.S. long. The stock was also the largest long of Valinor Management and Samlyn Capital. Shares of Constellation rose 0.5 percent, to close at $193.73.


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