Argo Group, Oyster Point, Antero Midstream and Other 13D Filings

Argo Group
International (ARGO)
Voce Capital Management disclosed on Nov. 7 that it held 1,974,447 shares of the property and casualty insurer after it bought 110,890 shares from Oct. 30 to Nov. 5. Those purchases were transacted at prices of $60.94 to $62.22 apiece and now gives Voce Capital a 5.8% interest in Argo. Last month, Voce Capital issued a press release that called for a reconstituted board, spurred by the SEC’s investigation into Argo’s executive compensation and benefits practices.

On Nov. 6, Voce followed with another press release stating that the resignation of Mark Watson as CEO “does not resolve our concerns about [Argo Group’s] operations, strategy, and corporate governance.” Voce noted that the board’s disposition to allow Watson to retire instead of being dismissed entitled him to severance and the full vesting of his restricted stock. Such a move, Voce believes, is a means for the board “to secure his willingness” to accept accountability for the recent SEC matters and “serves the interests of the board rather than those of shareholders.”

Voce also feels that Argo’s decision not to consider external candidates for the CEO role further cements the need for change, as it appears the board is “afraid” of an outside perspective. Voce concluded that such moves only short-change shareholders, and “until the board is reconstituted, there will be no fundamental change at Argo.”

Apogee Enterprises
(APOG)
Engaged Capital reported holding 1,689,332 shares of the commercial-glass manufacturer, equal to 6.4% of the tradable stock. On Nov. 10, Engaged and Apogee entered a cooperation agreement where Apogee would nominate three Engaged representatives to its board at the 2019 annual shareholders meeting. Engaged committed to customary standstill restrictions and also agreed that it and its affiliates would not own more than a combined 9.9% interest in Apogee through Aug. 1, 2020.

Lastly, both Engaged and Apogee agreed to “certain nondisparagement and no litigation provisions,” also until the start of August 2020. No specific plans or proposals have been discussed at this time.

Cellular Biomedicine Group
(CBMG)
Hillhouse Capital Advisors disclosed a position in the clinical-stage cell-therapy biopharmaceutical of 235,214 shares, or a modest 1.2% of the outstanding stock. The holding includes the purchase of 9,654 shares from Sept. 12 through Sept. 24 at $13.72 to $14.01 per share. Hillhouse revealed on Nov. 9 that it is one of three leading investors in a buying consortium that has proposed to take the biotech private.

That group includes Cellular Biomedicine’s CEO Tony Liu, also a lead investor, and would offer $19.50 per Cellular Biomedicine share to acquire all of the outstanding stock that it does not currently own. On Nov. 10 and 11, two additional investors joined the consortium, and on Nov. 11, the group submitted the nonbinding preliminary proposal to Cellular Biomedicine’s board. Per Hillhouse’s disclosure, the consortium owns a combined 4,704,004 shares, including 811,000 underlying options and 69,344 restricted stock units, equal to a 23.3% interest in Cellular Biomedicine.

Original Filings

Oyster Point Pharma
(OYST)
New Enterprise Associates initiated a stake in the biopharmaceutical company of 5,925,287 shares. That figure includes the purchase of 935,000 shares through Oyster Point’s initial public offering that closed on Nov. 4 at a price of $16 each. New Enterprise’s remaining common shares resulted from the automatic conversion of pre-IPO convertible preferred securities into common stock immediately after the offering’s close. New Enterprise is currently Oyster Point’s largest shareholder, with a 28.7% interest in the firm.

89bio
(ETNB)
RA Capital Management revealed on Nov. 13 that it holds a fresh position in the clinical-stage biopharmaceutical company of 3,161,214 shares. Included in that position are 1,500,000 shares purchased through 89bio’s Nov. 11 IPO at an offering price of $16 each.

RA Capital’s additional shares were acquired through the automatic conversion of pre-IPO convertible preferred securities upon the close of the IPO. RA Capital also disclosed that a principal of the firm serves on 89bio’s board and that RA Capital has no current plans or proposals regarding its 26.2% stake within the biotech

Decreases in Holdings

Antero Midstream (AM)
Warburg Pincus “zeroed out” its holding of the oil-and-gas midstream company through a registered offering. Per an underwriting agreement dated Nov. 6, Warburg sold 22,965,437 shares on Nov. 12 at $6.52 per share, exiting its entire Antero Midstream position. At the peak of its ownership, Warburg held approximately 55.1 million Antero common shares, a 29.6% interest reported in early June 2017. That stake remained constant until Warburg’s initial and subsequent sales beginning in May of this year.

Oil-Dri (ODC)
Gamco (GBL) revealed a smaller position in the specialty-minerals manufacturer of 775,418 shares, or 14.4% of the tradable stock. Gamco’s lower holding resulted from the sale of 15,900 shares from Sept. 16 through Nov. 11 at prices ranging $31.31 to $37.31 apiece.

The Activist Spotlight

e.l.f. Beauty
(ELF)

Business: provides cosmetic and skin-care products

Investor’s Average Cost: $17.59 per share

Stock Market Value: $791 million ($17.09/share)

What’s Happening: Marathon Partners is urging the board to begin an auction process that seeks a sale of the company to the highest bidder.

Key Numbers:

$62 million: e.l.f.’s calendar-year 2017 adjusted Ebitda

$62 million: e.l.f.’s fiscal-year 2019 adjusted Ebitda (changed fiscal year date in 2018)

$54 million: e.l.f.’s estimated fiscal-year 2019 adjusted Ebitda

Behind the Scenes: In its initial 13D filing in September of 2018, Marathon Partners recommended that the board sell the company if it could not refocus on core operations and boost profitability. Marathon now notes that the company’s adjusted Ebitda has stagnated, earnings quality has declined, and that there have been increases in overhead and compensation. Marathon believes that a strategic acquirer of the brand could cut significant expenses and operate the business much more profitably than an independent company. Marathon also noted that the company’s control shareholder, TPG, has signaled its intention to exit its position, and its underlying investors would benefit from a formal sales process. Marathon believes that the company has a skilled management team, but that e.l.f’s discount to private market value is simply too wide for the management team to overcome without a sale. A company spokesperson said that e.l.f. is making significant progress driving demand for the brand, stepping up its digital efforts, and generating cost savings to fuel brand investments.

–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 e.l.f. Beauty. 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]