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Company: Pitney Bowes (PBI)
Business: Pitney Bowes is a worldwide transport and mailing firm that gives expertise, logistics, and monetary providers to companies, together with greater than 90% of the Fortune 500, retailers and authorities shoppers around the globe. It operates via three enterprise segments: (i) Global Ecommerce, (ii) Presort Services and (iii) SendTech Solutions.
Stock Market Value: $666M ($3.83 per share)
Activist: Hestia Capital Partners
Percentage Ownership: 6.90%
Average Cost: $3.59
Activist Commentary: Hestia will not be an activist investor. Rather, the agency is a deep worth investor that can use activism as a final resort. Kurtis Wolf, managing member and chief funding officer of Hestia is a former technique advisor and notably labored at Relational Investors from 2002 via 2004. The agency is skilled in enterprise technique and applies its enterprise acumen to deep worth and distressed corporations to find out which of them have a great path ahead. As a end result, Hestia usually invests in corporations that could be misunderstood or not favored by the market, like GameStop, Best Buy and Pitney Bowes. The agency eschews biotech and commodity-driven corporations. Hestia’s solely prior activist engagement was in 2020, when it shaped a bunch with Permit Capital and ran a profitable proxy battle at GameStop.
Hestia has engaged with Pitney Bowes about enhancing the corporate’s capital allocation, bettering operational efficiency and making modifications to the board’s composition.
Behind the Scenes
Pitney Bowes’ SendTech options enterprise is the core enterprise that the corporate is mostly identified for: postage meters. This is a secularly declining, however not disappearing, enterprise that generates important money circulation. PBI expanded the SendTech division to incorporate transport labels, which is a development enterprise. The transport labels enterprise has traditionally competed with, and infrequently misplaced to, stamps.com, which was constructed into an enormous enterprise finally acquired by Thoma Bravo for $6.6 billion. The SendTech Solutions section accounts for 38% of Pitney Bowes’ income and generated $429 million in earnings earlier than curiosity and taxes in 2021. The postage meter enterprise includes 89% of the division’s income and the transport label enterprise includes the opposite 11%.
The Global Ecommerce section is comprised of primarily three parts: (i) a digital tech enterprise that sells the expertise behind Pitney Bowes’ postage and transport companies, giving shoppers the power to scale back transportation and logistics prices, choose the most effective provider primarily based on want and value, enhance supply occasions and observe packages in actual time; (ii) a worldwide cross-border options enterprise that handles all the transport and customs procedures of worldwide transport for patrons like eBay; and (iii) a home parcel enterprise, which is a distinct segment e-commerce enterprise dealing with returns of things and a competitor in opposition to corporations like FedEx and UPS. Global Ecommerce includes 46% of Pitney Bowes’ income however misplaced $99 million of EBIT in 2021.
The Presort Services section accounts for under 16% of income however generated $79 million of EBIT in 2021. This enterprise makes its cash from submit workplaces and simplifies the sorting course of for them. Pitney Bowes will decide up mail from companies in particular zip codes, kind the mail by zip code and get it to submit workplaces.
Bottom line, the corporate has too many companies and must simplify. The digital expertise and Presort companies are synergistic with Pitney Bowes’ core enterprise as one supplies it with the expertise to function and the opposite shares lots of the similar prospects and provides them the power to cross-sell. This means divesting the cross-border options enterprise and the home parcel enterprise. Neither is exhibiting enough ranges of development or revenue. The former has single buyer focus danger as eBay is by far its largest buyer, and the latter is competing with a lot bigger corporations like FedEx and UPS. Just closing these two companies can be accretive to shareholders, and they need to be capable to get some cash for them from a strategic acquirer. But the larger profit can be administration deal with its core enterprise and the power to extra appropriately incentivize administration. Management can deal with utilizing the money from the secularly declining postage meter enterprise to spend money on the rising transport label enterprise. The SendTech and Presort segments alone might be price $6 to $9 per share with out the distractions and dilution of the opposite companies.
Ideally, Hestia would advocate for this plan from a board stage. The firm has a nine-person, unstaggered board with a nomination deadline opening on Jan. 2, 2023. Hestia will probably want greater than only one board seat to drive change at Pitney Bowes. The firm has been round for over a century, and a majority of the administrators have a ten+ 12 months board tenure. Marc Lautenbach will not be essentially the improper CEO for this firm. He simply has misplaced focus along with his consideration being pulled in so many alternative instructions. A extra streamlined core enterprise with him as CEO might work very nicely. The firm may gain advantage from a shareholder consultant with a robust enterprise technique acumen, and we’d count on Hestia to incorporate Kurtis Wolf in its slate of nominees together with some skilled business executives. With the common proxy now in play, we’d count on Hestia to appoint as much as 4 administrators to provide shareholders a bigger pool from which to pick out.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and he’s the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire can be the creator of the AESG™ funding class, an activist funding type centered on bettering ESG practices of portfolio corporations.