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An Activist Investor to Have on Your Radar: Jeffrey C. Smith (Starboard Value LP)

September 19, 2012 | About:

Starboard is an investment management firm that invest in undervalued and underperforming public companies.

Their approach is to actively engage and work closely with management and the board of directors to unlock value for the benefit of all shareholders.

I think it's really insightful to read how they analyze the competitive position of Office Depot Inc. and their suggestions of how to improve business performance.

This is the link to Office Depot Inc.'s investment thesis (Sept. 17, 2012):


They begin with historical performance vs peers, in particular their historical operating margin vs peers, then how these differences have been reflected in market prices.

After that, they analyze how General and Administrative (“G&A”) and Advertising Expenses have been higher and increasing vs competitors, in a general context of slowing revenue for the industry.

Then they suggest four steps to improve gross margin 1) by increasing the mix of higher-margin services, 2) by increasing their private label penetration, 3) by reducing inventory lowering the number of SKUs (stock-keeping units) in order to obtain more scale in purchasing 4) by downsizing to smaller store formats.

Lastly, they emphasize what could be an 'hidden asset': their 50% stake in the Office Depot de Mexico joint venture. By applying the ev/ebitda multiple that the market recognize to Grupo Gigante SAB de CV (the Mexican company that owns the remaining 50%) that has similar growth and margin profile, this unrecognized value is equivalent to approximately 76% of Office Depot’s entire enterprise value of $1.2 billion (at September 17, 2012 prices).

This last part is similar to the action taken towards where they pushed them to sell what at the time were hidden assets: their patents. See AOL Inc's investment thesis (May 23, 2012):


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