Pirate Capital
Pirate Capital | Hedge Fund Notes
The following piece on Pirate Capital Management is being published as part of our daily effort to track hedge funds in the industry. To review other hedge fund research notes please see our Hedge Fund Tracker Tool.Resource #1: Tom Hudson and his pirates had a blunt message for Canadian ski-resort owner Intrawest Corp.: ``Surrender the Booty.''
It was March 2006, and Hudson, who runs a hedge fund firm called Pirate Capital LLC, spied treasure at Vancouver-based Intrawest. Its shares were trading at $32, and Hudson owned 5.8 million of them. That made him the company's biggest shareholder and, in his eyes, the boss.
So Norwalk, Connecticut-based Pirate, which flaunts its ``booty'' motto on baseball hats, demanded Intrawest put itself on the block.
``We urge you to fulfill your fiduciary duties to all shareholders by immediately initiating a sale of the entire company,'' Pirate analyst Stephanie Tran wrote to the board.
Five months later, Intrawest, with 24,800 employees, sold itself to New York-based Fortress Investment Group LLC for $1.8 billion, or $35 a share. Pirate had begun buying the stock at $15.80.
Hudson, 41, has made a fortune as the hedge fund Blackbeard, dragooning companies that don't make him enough money. A Wall Street outcast who was fired from Goldman Sachs Group Inc., Hudson buys stocks and then battles managements to drive prices in his favor. Since Hudson founded Pirate in May 2002, he and his crew have fought their way onto the boards of eight companies.
To enrich himself and his investors, Hudson has helped scuttle a proposed $7.9 billion takeover of Princeton, New Jersey-based NRG Energy Inc. by Atlanta-based Mirant Corp.; prompted Tampa, Florida-based coal and homebuilding company Walter Industries Inc. to spin off a unit for $400 million; and driven Houston-based Cornell Cos., which runs prisons, into the arms of a suitor. source
Resource #2: Pirate Capital LLC, the hedge-fund manager run by Thomas Hudson, barred withdrawals from its two Jolly Roger Activist funds after the firm's assets declined by almost 80 percent in the past year.
Pirate designated the four stocks held by the funds as ``special investments,'' meaning that clients won't be able to get money back until they are sold, according to an Aug. 31 letter to investors.
``In view of the activist nature of the funds, prior redemptions, market turmoil and their effect on the funds' individual positions and portfolios as a whole, we determined that the best way to manage the positions is through the Special Investment designation,'' Hudson said in the letter, a copy of which was obtained by Bloomberg News. The firm may also lift the designation without selling the stocks.
Hudson, 41, who founded Pirate in 2002, is known for acquiring stakes in companies and pushing management to make changes to boost their stock prices. The Norwalk, Connecticut- based firm's assets fell to $375 million as of Sept. 1 from $1.8 billion a year earlier.
The activist funds, which opened in January 2006, had $150 million in assets as of March 2006, according to a Pirate marketing document. They now oversee about $100 million. The funds lost about 1 percent for the year through June 30, according to a newsletter sent to investors.
The withdrawal halt doesn't apply to Pirate's two larger hedge funds, said Jeff Lloyd, a spokesman for the firm. Those funds invest in companies going through corporate events such as takeovers or bankruptcy reorganizations. One of those pools, the Jolly Roger Offshore Fund Ltd. gained 1.5 percent in the first half of 2007. source
Resource #3: (2.8.07) The Brink’s Company (BCO), a global provider of security and risk management services, and Pirate Capital LLC announced today that they have reached an agreement. As part of the agreement, Thomas R. Hudson Jr., managing member of Pirate Capital, will join the Brink’s board of directors at its upcoming February meeting. Hudson will serve on the board’s strategy, pension and finance, and executive committees. Pirate Capital owns approximately 8.5% of the outstanding common stock of Brink’s.
Michael T. Dan, chairman, president and chief executive officer of The Brink’s
Company, said: “We welcome Mr. Hudson to the board and look forward to his
contribution to the continued creation of additional value for all of our shareholders.” source
Resource #4: (4.7.07) “Arr. We’re taking on water. Ye’ll ne’er get me buried booty!” That’s the translation you get at the Web site talklikeapirateday.com for the phrase “taking on water,” and it may be a fitting description for what’s going on over at the swashbucklers at Pirate Capital.
That’s because it looks like the activist hedge fund is being forced to liquidate positions because some investors are demanding their money back.
Late Wednesday, Pirate Capital said it had liquidated its stake in Cornell Cos. It had 1,250,000 shares, or an 8.9% stake, of the Houston provider of correctional services as of March 29. The night before, CKE Restaurants said it had agreed to buy 4.07 million of its common shares, or about 6.1% stake, from Pirate Capital for $18.97 a share, or $77.2 million.
This activity was noted by Ken Squire, who runs 13D Monitor, a research service that tracks activist investing. He sent out an email to clients yesterday noting the following:
• That Pirate has made five Securities and Exchange Commission filings since March 21, reporting a sale of shares for a total exceeding $175 million.
• In two of those filings, Pirate disclosed that it had decreased its ownership below 5% but it didn’t sell the entire stake, which means it had another $91 million of shares it could sell without any filing.
• That this comes at the end of the quarter, when redemptions typically occur and after rumors of investor requests for redemptions and after Pirate’s assets under management, as indicated in SEC filings, decreased to $1.2 billion as of Dec. 31, 2006, from a high of $1.8 billion as of June 30, 2006.
In a phone interview, Squire says Pirate Capital has been slowing its new investments, making only one SEC filing indicating a new activist investment since June.
Pirate Capital has experienced a bit of rough sailing of late. In September, The Wall Street Journal reported that some of Pirate’s investments were down sharply, with its overall return was just 3%, according to hedge-fund industry advisers, less than an average of about 7% for activist funds in general.
Pirate Capital declined to comment. source
Resource #5: Pirate Capital's Thomas Hudson is one of those malcontents aiming to shake up stodgy companies. You can invest alongside him.
Vulture investors buy sick companies with valuable assets, hoping that somebody will take them out at a premium. Takeover tycoons buy whole companies and do the dirty work themselves. Between these extremes lies a world of activist investors. They buy large but not controlling stakes in companies and clamor for changes. Tweedy, Browne played this role at Hollinger International (HLR), the newspaper chain with the unsavory management. Carl Icahn did the same at Time Warner (TWX).
For two years one of these gadflies, hedge fund Pirate Capital, has pushed for an overhaul at GenCorp, an aerospace and weapons developer, shelling out $70 million for a 9% stake. Pirate's goal: to reenergize the stock by getting GenCorp to sell 12,000 acres of undeveloped land outside Sacramento. So far Pirate has won some board seats but no bonanza; the stock is up from $11, around the time it started buying, to $13 now.
One hedge fund with a minority stake can sometimes have a big impact, particularly if like-minded investors follow it in. Pirate's kindred spirits include Atticus Capital, Jana Partners, Bulldog Investors, Barrington Capital, Third Point and Steel Partners. When one of this bunch gloms on to a company, others often follow, thus magnifying their power. Steel, with 7% of GenCorp, votes with Pirate.
Matters came to a head at GenCorp's annual meeting in April when Pirate put up its slate of board nominees. Strangely, GenCorp's chief executive walked into the tension-jazzed meeting and lulled everyone into a stupor with a long-winded speech about the company's 90-year history. As the fellow droned on, Pirate's man on the scene, David Lorber, realized that management was delaying the vote while it contacted investors to change their minds. So Lorber fired off two dozen e-mails from his BlackBerry to shore up support and alerted colleagues at Pirate's headquarters in Norwalk, Conn. to work the phones. In the end Pirate ousted three of GenCorp's ten directors. source
Resource #6: Pirate Capital LLC, the beneficial owner of approximately 17.6 million shares of common stock in Aquila, Inc., urged today in a letter to all Aquila, Inc. shareholders that the shareholders express their concerns with respect to the proposed acquisition of Aquila, Inc. by Great Plains Energy and Black Hills Corporation, and ultimately vote against the deal.
Dear Fellow Aquila Shareholders,
As one of the largest shareholders of Aquila, owning
approximately 4.7% of Aquila shares, we are extremely disappointed
that the deal with Great Plains Energy and Black Hills Corporation
was accepted by management. We do not believe that this
acquisition offer reflects the full value for Aquila shares, and
we urge all shareholders to vote against this deal. We are also
concerned that Aquila's management is entitled to generous
severance packages despite the fact that the company has lost
hundreds of millions of dollars in recent years. We strongly
believe that this deal fails to maximize shareholder value, as
evidenced by the additional losses to market cap when the deal was
announced. In our view, the acquirers of Aquila are effectively
stealing the business from Aquila shareholders.
We urge all shareholders to call, fax, or email Chairman and
CEO Rick Green to express your concerns in an effort to have this
deal nullified immediately. Mr. Green can be reached by phone at
816-467-3532, faxed at 816-467-3556, or emailed at
rick.green@aquila.com. In addition, if you would like a more detailed
explanation of the shortcomings of the proposed deal, please contact
our investment analyst Peter Desloge at 203-854-1100 or
peter@piratecapitalllc.com. If Great Plains Energy and Black
Hills Corporation fail to revise their bid in a manner that is
favorable to Aquila shareholders, we believe that Aquila must
continue to operate as a stand alone company. source
Resource #7: (9.11.07) Pirate Capital LLC, the hedge-fund manager run by Thomas Hudson, barred withdrawals from its two Jolly Roger Activist funds after the firm's assets declined by almost 80 percent in the past year.
Pirate designated the four stocks held by the funds as ``special investments,'' meaning that clients won't be able to get money back until they are sold, according to an Aug. 31 letter to investors.
``In view of the activist nature of the funds, prior redemptions, market turmoil and their effect on the funds' individual positions and portfolios as a whole, we determined that the best way to manage the positions is through the Special Investment designation,'' Hudson said in the letter, a copy of which was obtained by Bloomberg News. Pirate may also lift the designation without selling the stocks. source
Resource #8: (11.15.04) Zachary R. George, 27, serious, square-shouldered, and wearing some kind of goo in his hair, sits at a long counter of a desk in Norwalk, Connecticut. He’s got a phone and a screen, like a telemarketer. Picking up the receiver, Zachary dials into the conference call.
“Harry,” begins Zachary when it’s his turn. Zachary and Harry J. Phillips Jr., the 55-year-old CEO of Cornell Companies, one of Houston’s top 100 businesses, use each other’s first names, as if they’re cordial, which they’re not.
“You work for us,” Zachary likes to let Harry know. Zachary represents a two-year-old hedge fund called Pirate Capital, a name that Zachary says gets people’s attention. (And if that doesn’t, then the 32 percent returns per year do.) For $20 million, Pirate purchased 13 percent of Harry’s company, which runs prisons. This makes Pirate Harry’s largest shareholder and, as Zachary sees it, Harry’s boss.
By now Harry, a distinguished member of prestigious boards, a trustee of his alma mater, Washington & Lee, is accustomed to Zachary’s urgent tones, especially when it comes to, as Harry put it, his “recent acquisition of an interest in Cornell.”
Zachary, for his part, doesn’t really understand how people outside Wall Street can expect to not make their numbers and still have friendly relations. Zachary, who looks like he might still be the college snowboard competitor he once was, takes a different view. Cornell has missed its earnings predictions for six or seven quarters running. “Why,” he’d recently asked Harry, “should anyone expect a CEO that has overseen the destruction of so much shareholder value to be able to turn things around now?”
Harry knows that Cornell, with its 4,000 employees in sixteen states, has had some disappointments. But on the conference call, he makes it sound as if that’s a mere detail. “We are going to grow this company,” Harry tells the analysts. Then, as if the greatest worry might be that Harry is going to throw in the towel, he adds, “We’re in it for the long term.” source
Resource #9: (9.26.06) There's blood aplenty on the decks of Pirate Capital, a $1.7 billion hedge fund that saw nearly half its investment staff depart this week.
Norwalk, Conn.-based Pirate has garnered attention by attracting Securities and Exchange Commission scrutiny for belatedly disclosing the sales of its stakes in OSI Restaurant Partners Inc. and Freightcar America Inc.
The fund specializes in taking substantial stakes in allegedly underperforming companies and agitating for management action, such as asset sales and share buybacks.
While Thomas Hudson, Pirate's general partner and a former distressed debt trader at Goldman Sachs, did not disclose the reasons for the departure of four analysts and one portfolio manager, the fund's much weaker-than-usual performance could not have helped.
Pirate is said to be up around 3 percent, trailing the 9.34 percent yearly return of the Dow Jones industrial average, and way below the 28-percent average returns of its first few years.
In an August letter to investors, he blamed the weakness on "shipwrecks" like its stake in OSI Restaurants, the parent of Outback Steakhouse.
In a letter to Pirate investors obtained by The Post, Hudson said he was planning on capping growth by closing its four funds, and that he would "refocus, streamline and navigate" the portfolio back to "the positive performance" he initially had. source
Resource #10: Pirate Capital LLC is a Norwalk, Connecticut[1] based hedge fund founded in 2002 by Thomas R. Hudson Jr. The firm employs shareholder activism to push for structural changes in target companies.
Pirate Capital LLC is the general partner entity to 4 funds (listed below). All 4 funds employ the same approach to investing, though the activist funds tend to be significantly more concentrated, and primarily consist of equity instruments in companies that are targeted for activism.
The fund purchases stakes in underperforming companies and then pushes for managerial action.[2] The company's motto is: "Surrender the Booty!"[3]
Tom Hudson, 41, who founded Pirate in 2002, is known for acquiring stakes in companies and pushing management to make changes to boost their stock prices.
The firm’s assets fell to $375 million as of September, 2007 from $1.8 billion a year earlier. source
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