Hologic (NSDQ:HOLX) is facing another challenge from an activist investor, just weeks after putting ex-Stryker (NYSE:SYK) CEO Steve MacMillan into the corner office to allay the concerns of famed corporate raider Carl Icahn.
Relational Investors and principals Ralph Whitworth and David Batchelder began buying up shares of Bedford, Mass.-based Hologic in August 2013, according to a regulatory filing, and now control some 20 million shares for a 7.3% stake in the women’s healthcare firm.
Like Icahn, which Hologic mollified last month with MacMacmillan’s appointment and the addition of 2 Icahn proxies to its board, Relational is concerned that HOLX shares are undervalued, according to the filing. Hologic was among the lowest gainers among medtech stocks last year, posting growth of just 9.0% as of Dec. 17 in what was otherwise a banner year for publicly traded medical device companies. HOLX shares were trading at $22.12 apiece as of about noon today, up 0.8%.
"The reporting persons attribute this discount to subpar operational execution and a history of deploying capital to over-priced acquisitions. These acquisitions have burdened the company with excessive leverage and pushed the company’s return on invested capital below its cost of capital. Driving this acquisition strategy was a short-term executive compensation program focused on revenue and [earnings-per-share] targets, without regard to investment returns, as well as a long-term executive compensation program that did not include performance targets," according to the filing.
Relational wants Hologic to shed some divisions and pay down the debts it took on to make such acquisitions as the blockbuster $4 billion buyout of Gen-Probe in 2012 and the $125 million acquisition of Interlace Medical in 2011.
That said, the activist investor (which had a hand in sundering the $1.6 billion merger of Charles River Laboratories (NYSE:CRL) and WuXi PharmaTech (NYSE:WX) in 2010) seems please with Hologic’s recent moves.
"The reporting persons commend the company for announcing a strategic review and adopting the reporting persons’ capital allocation recommendations on the company’s 4th-quarter earnings call held November 11th, 2013. The reporting persons are further encouraged by recent management changes and the addition of shareholder representatives to the board of directors," according to the filing. "Management should continue to regularly communicate and report on its stated plan to pay down debt and return cash to shareholders. The reporting persons intend to monitor the company’s adherence to this strategic plan and capital allocation disciplines."