In this interview, we chat with Chris Kiper of activist hedge fund Shamrock Capital. Shamrock was founded by Stanley Gold as the asset management company for Walt Disney’s nephew, Roy Disney. Stanley Gold made a name for himself as a board member of Disney and helped get Michael Eisner appointed as CEO in the 1980s and later led a shareholder revolt which ultimately led in Eisner’s departure. Since then, Shamrock has taken on new clients such as CALPERS (California Pension and Retirement System). Over the years, Stan Gold and Shamrock have had some phenomenal returns.
Shamrock’s activist fund looks to invest in 10 to 12 companies and has about $1 billion in assets under management. Its target companies are usually smaller sized corporations. The goal is to work with management to go about changing things for the benefit of shareholders and get the price of the securities to full value. The investment time horizon is about 36 months. Shamrock usually does not go about getting involved in big fights. It would rather deal quietly and effectively with management.
Shamrock seeks to have a company change its structure to be more shareholder friendly and looks to do the following: have the board of directors elected by a majority and not a plurality, hold elections annually for each and every board member, dissolve poison pills, separate the roles of chairman of the board and CEO, and make sure the board is independent of management (not golfing buddies as Chris would say).
One of several investments discussed was Panera Bread (PNRA). Panera’s stores offer reasonably priced sandwiches, salads, and baked goods. It has 1,200 stores and Chris predicts that Panera will be adding many more (43% are company owned). Shamrock owns 7% of outstanding shares and this proportion could rise: Panera has bought back what could be close to $75 million in shares. At $37 a share, it is way off of its 52 week high of $62. The company has a clean balance sheet and bares no debt.
According to Shamrock, the economics are strong. Initial store investment is about $920,000 with year one operating income at about $350,000. This equates to 45% cash on cash by year two and an after-tax internal rate of return of 25%. Other smart investors in this stock include Wally Weitz, William Blair and Co., and RS Investment Management.
Other stocks in this interview include Ready Ice (FRZ) and Coinstar (CSTR). To hear interviews, go to www.stockroyalty.com