Tuesday, October 25, 2011
State Street rises on activist shareholder letter
THE SPARK: The Trian Fund Management hedge fund, led by billionaire investor Nelson Peltz, sent a letter Sunday night to State Street's management. The letter said Trian thinks State Street's stock is well below where it should be. State Street's stock is down 29 percent for the year to date and closed at $33.90 on Friday.
Trian said the trust banks could have an implied stock price target of about $99 per share by 2014.
State Street said early Monday that its senior management has had "constructive discussions about our business" with Trian.
THE BIG PICTURE: Peltz has a reputation for taking an active hand in the companies he buys into, like Wendy's Co., Arby's and H.J. Heinz Co.
One Pelt'z highest-profile efforts was buying Wendy's and merging it with Arby's, which Trian already owned. Peltz took an active role in Wendy's affairs, becoming chairman of the merged company's board of directors.
The results were mixed. The companied company struggled during the recession and lost money seven out of 10 quarters when the companies were combined. The company ended up selling Arby's, and Wendy's has since rebounded to profitability.
THE ANALYSIS: It appears that Peltz is ready to take a similarly active role with State Street.
Trian owns about 3.3 percent of the company's stock. On Sunday, the hedge fund made it clear it wasn't happy with the progress of its investment. Trian said management to work harder to return capital to shareholders.
Trian said it believes State Street "has prioritized growth over profitability and has led to dilutive acquisitions, inadequate cost management and significant non-recurring charges.! "
Trian said that acquisitions by State Street have been very expensive and that costs have grown faster than sales. Trian said that it is will to work with State Street but that if its board and management did not make progress it may consider becoming "significantly more active."
SHARE ACTION: Shares of State Street rose 60 cents, or 1.8 percent, to $34.50 in midday trading, even as the broader Dow Jones industrial average was down 1.5 percent. State Street shares were as high as $35.39 during a morning rally.
State Street still has a long way to go to make up its losses for the year. The stock is about 26 percent off the high of $46.84 it hit on July 7. Since then, the company has been buffeted by roiling credit markets and falling stock prices.
Tags: Best Stocks To Invest In 2012 ,Top Stocks To Buy For 2012 ,Much Work Remains in European Talks
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