ValueAct Blows Out Of American Express
American Express is in trouble and it appears there will be no activist coming to the rescue. Activist hedge fund ValueAct Capital, ran by Jeff Ubben, had a roughly 1.1% stake in the credit card company heading into the fourth quarter.
It appears that in all likelihood ValueAct sold its shares during the the fourth quarter, and in the least, sources with direct knowledge of the matter tell Activist Stocks and ValueWalk that Ubben is considering a sale of its stake and will not be adding to the position.
The reason for the change of heart? Warren Buffett, whose Berkshire Hathaway owns 15.4% of American Express.
Apparently the activist investor Jeff Ubben and Warren Buffett did not see eye-to-eye on how to fix American Express, according to sources with direct knowledge of the matter.
There was much speculation that Jeff Ubben and his ValueAct Capital could reign in American Express’ bloated cost structure and cut overhead. More importantly, that ValueAct might just get American Express to wake up to the digital revolution taking place around it and address the onslaught of digital payments eroding its once “wide moat.”
However, that would likely require a serious management shakeup, with the need to bring in some fresh blood. Note that American Express CEO Ken Chenault has been with the company for close to 35 years and CEO for 15 of those.
For better or worse, management change is something that Warren Buffett does not take kindly to. Especially when it comes to Ken Chenault.
At Berkshire’s 50th annual shareholder meeting last may, Buffett had this to say of Ken Chenault, “Ken has done a sensational job anticipating some of these trends and guiding it into some of those markets.”
Jeff Ubben and ValueAct never really stood a chance. Recall that Berkshire did something rather unprecedented a few years back when it said it’d vote with American Express management on everything. Recall when Ken stood in front of shareholders at the 2010 American Express annual meeting and said, “Warren has given me his proxy.” That was on two conditions; one, that Berkshire owns over 5% of American Express, and two, that Ken is CEO.
Now, Ken Chenault said on the fourth quarter earnings call yesterday, "We [American Express] recognize we're operating in a new reality."
But does he really? The shift toward prepaid cards with its BlueBird brand and trying to partner up with Wal-Mart (NYSE: WMT) and McDonald’s (NYSE: MCD) aren’t really indicative of addressing the new reality. A new reality of digital payments and ambiguity when it comes to which card to use. It’s about ease and low fees these days.
With the help of Warren Buffett, it appears that Ken Chenault will get his chance to navigate this “new reality.”
Is this latest opposition of an activist investor by Buffett just the latest in his saga to keep defunct management in place, as he watches his once wide moat companies crumble at the hands of the thing he hates most, changing technology?
Berkshire Hathaway did not respond to a request to comment. ValueAct and American Express declined to comment on the matter.