Lowe's Accepts Input From Hedge Fund -- WSJ
January 20 2018 - 3:02AM
Dow Jones News
By David Benoit
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 20, 2018).
Activist investors are watching from the skies.
When D.E. Shaw & Co. sought to explain to Lowe's Cos. why it
thought the home-improvement giant was underperforming rival Home
Depot Inc., the New York hedge fund was armed with a data set that
included an analysis of the number of cars in the two chains'
parking lots from two years of satellite imagery, according to
people familiar with the matter.
The fund, which invested $1 billion in Lowe's, had accessed the
images and counted the cars to help bolster an argument that the
retailer wasn't attracting enough customers, the people said. The
fund also used U.S. census data to map out potential customers and
determine the reach of the chains, and it surveyed thousands of
customers.
On Friday, D.E. Shaw helped shake up the board at Lowe's, a
company with an $80 billion market value, as the retailer agreed to
add three new directors this year.
The agreement, which both sides say was reached amicably after
the fund presented in-depth research, is the latest sign that even
investment firms without a reputation for winning big votes and
bruising fights can still gain influence at major U.S. companies.
While D.E. Shaw hasn't run a proxy fight, it enlisted David
Batchelder, a pioneer in the home-improvement field and a former
director at Home Depot, for its approach to Lowe's.
Mr. Batchelder will join Lowe's board in March along with Lisa
Wardell, chief executive of for-profit education company Adtalem
Global Education Inc., formerly known as DeVry. At the retailer's
annual meeting, it will also add Brian Rogers, the chairman of T.
Rowe Price Group Inc., whose funds last year withheld votes for the
election of every Lowe's board member.
In a statement, Lowe's Chief Executive Robert Niblock said he
valued the "constructive discussions we have had with the D.E. Shaw
group."
The stock rose 3.5% to $104.95 on Friday.
D.E. Shaw has historically been a quantitative trading shop,
where computers drive investment decisions based on massive piles
of data. Last year, it hired Quentin Koffey from Elliott Management
Corp., one of the most aggressive activist firms, to begin to use
its resources to push companies to improve performance.
Activists have long been known to do heavy research and show up
with white papers dissecting a company's problems and suggesting
fixes, one reason CEOs tend to loathe their arrival and even view
their critiques as a personal attack.
D.E. Shaw assembled information that they thought detailed
Lowe's underperformance compared with Home Depot, beyond the more
obvious comparison of shares prices and sales, the people said. It
broke down the census data to determine the economic status of
people who live near each chain. It also surveyed 4,000 customers
about their shopping experience, revealing concerns about product
availability, the people said. The fund also detailed online
shortcomings.
In the end, D.E. Shaw estimated some $8 billion in additional
revenue could be found and nearly $1 billion in costs could be cut
at Lowe's, the people said.
Lowe's had $65 billion in revenue in fiscal year 2017, up 10%
from the prior year, and expects it to rise 5% in the year ending
soon.
Lowe's executives have already been discussing ways to boost
revenue and improve customer results both in stores and online,
looking to invest in the products. The company, which is based in
Mooresville, N.C., has sought to improve profitability, including
on the supply chain. It has closed the gap with Home Depot on
same-store sales growth. Still, Lowe's stock has underperformed
that of its rival over the past year, three years and five
years.
--Allison Prang contributed to this article.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
January 20, 2018 02:47 ET (07:47 GMT)
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