13D Filings on GP Strategies, Tribune Publishing, and More

GP Strategies (GPX)
Cove Street Capital disclosed on Nov. 21 that it held 2,409,532 shares of the education and professional-development services provider, equal to 14.2% of the outstanding stock. Cove Street revealed that it has shifted to an active stance, as it “expects to engage the board and the management team” over GP’s “difficulty over a multiyear period” in striking what Cove Street believes are acceptable growth rates in revenue and profit.

Those issues were laid bare amid “management changes and the systems implementation problems” that followed the sale of a tuition-management unit that Cove Street feels was undervalued by GP. Cove Street added that “there is a material question mark regarding the risk-adjusted present value of [GP’s] operating plan,” and it should be the board’s priority to “explore strategic alternatives that could further highlight the underlying value of [GP] versus its current share price.”

USA Technologies
(USAT)
Hudson Executive Capital revealed that it holds 10,385,172 shares of the payments-processing firm, equal to 16.3% of the tradable stock. On Nov. 15, Hudson Executive issued a press release stating that it was seeking legal action through the Court of Common Pleas of Chester County, Pa., to block USA Technologies’ recent bylaw amendment that would prevent shareholders from calling a special meeting before the company’s next annual meeting of shareholders, one that Hudson noted has not occurred “in nearly 19 months.”

Through a Nov. 25 disclosure, Hudson cited that on Nov. 21, the noted Court of Common Pleas ordered USA Technologies to hold its annual shareholder meeting no later than April 30, 2020. “Consistent with the court’s order,” Hudson is standing down with its request for any special meeting of shareholders.

Original Filings

Amtech Systems
(ASYS)
Privet Fund revealed a fresh stake in the electronics capital-equipment firm of 832,687 shares. That figure includes the purchase of 363,529 shares from Sept. 27 to Nov. 22 at prices ranging from $4.50 to $5.80 each, giving Privet an approximate 5.8% stake in Amtech’s outstanding stock.

Tribune Publishing
(TPCO)
Alden Capital disclosed an initial position in the newspaper operator of 11,544,213 shares. Alden’s new stake comprises 2,472,684 shares bought from $8.46 to $12.98 apiece on Oct. 30 through Nov. 25 and 9,071,529 shares purchased through a private transaction that closed on Nov. 15. The latter transaction bought out Merrick Media’s controlling interest in the firm— representing the majority stake held by Michael Ferro—at $13 per share. After the investments, Alden is Tribune Publishing’s largest shareholder, with a 32% stake in the company. Alden further revealed that it may engage Tribune to discuss a myriad of topics that include Alden seeking representation on the board.

TELA Bio (TELA)
OrbiMed Advisors reported on Nov. 25 a new position in the human-tissue reinforcement-materials biotech of 3,058,267 shares, or roughly 27.7% of the outstanding stock that also accounts for 30,725 shares underlying exercisable warrants.

The holding includes 384,615 shares purchased through TELA Bio’s initial public offering at $13 each that closed on Nov. 13. OrbiMed’s other shares resulted from the conversion of convertible preferred securities into common stock immediately after the IPO closed.

Increases in Holdings

Bonanza Creek Energy
(BCEI)
Mangrove Capital disclosed an increased position in the independent oil-and-gas explorer of 2,060,700 shares, equal to almost 10% of the tradable stock. The higher stake resulted from the purchase of 39,000 shares on Nov. 18 and 19 at a price range of $17.34 to $18.23 apiece. Mangrove has no plans or proposals in relation to the added investment. On Nov. 20, it entered into a cash-settled total return swap contract with an outside party that provides Mangrove additional exposure to 1,244,610 shares, another 6% of Bonanza Creek’s outstanding stock.

Diana Shipping
(DSX)
Anamar Investments revealed on Nov. 26 that it added to its holding of the shipping firm “solely for investment purposes” with the purchase of 200,000 shares. Those additions were transacted on Oct. 1 through Oct. 8 at prices of $3.41 to $3.45 each and boosted Anamar’s stake to 6,677,329 shares, equal to 7.1% of Diana Shipping’s tradable stock.

CAI International
(CAI)
Weiss Capital lifted its interest in the freight and logistics firm to 7.2% of the outstanding stock. The higher position of 1,254,592 shares resulted from the purchase of 189,700 shares during the period of Nov. 8 through Nov. 21 at prices ranging from $23.19 to $24.16 apiece. Weiss has yet to report any sales of CAI and has steadily increased its holding since it reported owning roughly 1.5% of CAI’s outstanding shares at the end of June 2018.

Decreases in Holdings

Asure Software
(ASUR)
Red Oak Partners reported a smaller holding in the human-capital and workplace-management services firm of 855,385 shares. Red Oak sold 110,000 shares on Nov. 20 and 21 at prices of $8.49 to $8.56 each and now holds a 5.5% interest in the information-technology firm.

Marcus (MCS)(GBL) cited a reduced stake in the movie theater, hotel, and resort operator of 1,420,182 shares, or 6.2% of the tradable stock. Gamco sold 99,680 shares during the span of Sept. 26 through Nov. 22 at prices of $31.12 to $37.24 apiece.

The Activist Spotlight

CVS
Health (CVS)

Business: integrated pharmacy health-care company

Stock Market Value: $97.5 billion ($75.24/share)

What’s Happening: The Wall Street Journal reported that Starboard Value has taken a position in the company.

Key Numbers:

10x: CVS’ approximate price/earnings ratio

17x:
UnitedHealth’s
approximate P/E ratio

$100: share price that CVS could achieve if it increases its P/E ratio close to UnitedHealth’s

$120: share price that CVS could achieve after better communication and delevering

Behind the Scenes: This is the type of opportunity that Starboard finds very attractive. In late 2018, CVS acquired Aetna, targeting $900 million of synergies by 2021. Despite that, CVS’ adjusted earnings per share is projected to be down in 2019, and the market might be starting to doubt the credibility of management to achieve those synergies. Starboard has had great success in improving margins and realizing synergies in similar situations and could be helpful here, whether as an active shareholder or potentially from a board level. CVS’ integrated health-care assets are most similar to that of UnitedHealth. UnitedHealth is well managed and well integrated, and has consistently achieved steady earnings growth, and thus trades at a much higher price/earnings ratio than CVS does. Significant shareholder value could be created if CVS could increase its multiple closer to UnitedHealth’s. Moreover, if after realizing synergies, CVS began communicating its strategy more effectively and continued to use its free cash flow to delever, its multiple could rerate even higher. CVS declined to comment.

–Kenneth Squire

The 13D Activist Fund, a mutual fund run by an affiliate of the author and not connected to Barron’s, has no position in
CVS Health.
In addition, the author publishes and sells 13D research reports, whose buyers may include representatives of participants in, and targets of, shareholder activism.

Email: [email protected]