Missouri Minute: Emerson, Peabody earnings calls show activist investor pressure

Good morning, MBA readers,

A handful of Missouri’s largest companies are finding themselves in hot water lately as activist investors exert their influence.

In an earnings call this week, Emerson Electric Chairman and CEO David Farr revealed that the Ferguson-based conglomerate has cut its private air fleet by nearly half after concerns from D.E. Shaw. The hedge fund, which pegged the cost of maintaining eight planes and a helicopter at $24.4 million a year, called that “inefficient and insufficiently focused” spending and demanded the company rein in its outlays.

That estimate may be but a drop in the ocean for a multibillion-dollar company like Emerson, but D.E. Shaw sees it as symptomatic of a much larger issue. A little more than three months earlier, the investor claimed to have identified $1 billion in potential savings at the company. D.E. Shaw even went so far as to propose splitting Emerson in two, a move it said could create more than $20 billion in equity value. Emerson remains intact, yet it capitulated by appointing to its board an ally of the activist investor.

A similar story unfolded elsewhere in the St. Louis area this week, when Peabody Energy reported its fourth-quarter results. In addition to introducing austerity measures, the coal company agreed to give two board seats to executives of Elliott Management, a New York-based investment firm that owns nearly 30% of Peabody.

Across the state, Elliott has been a familiar and full-throated voice calling for change at another Missouri company. Last month, Elliott revealed itself as the fourth-largest shareholder in Evergy, with a stake that translates to about 5% of the Kansas City-based utility’s market value. Elliott leveraged that position to make itself heard with an ultimatum: restructure the business or consider merging with an industry partner. In particular, Elliott took aim at Evergy’s buyback program, suggesting the company could provide as much as $5 billion in additional value for shareholders if it instead focused on investing back into its infrastructure. The strong-armed maneuver is nothing new for Elliott, which in the past has pushed for changes at AT&T and eBay.

Scroll down to read more on these and other top business stories from around the state.


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Missouri sues feds over North Dakota water project
The Missouri Attorney General’s Office and state Department of Natural Resources have sued the U.S. Army Corps of Engineers and the U.S. Department of the Interior in a bid to stop the construction of a water diversion project in North Dakota. The lawsuit claims the project would divert water from an already depleted section of the Missouri River, potentially cutting into Missouri’s water supply. (Missourinet)

Google Fiber to cut traditional TV service
The high-speed internet service, currently available in 18 markets including Kansas City, will no longer offer linear TV service to new customers. Existing customers will be able to keep their TV service, though it is unclear for how long. (Kansas City Business Journal)

Facing heat from activist investor, Emerson Electric trims private aircraft fleet
The Ferguson-based conglomerate has reduced its fleet of eight private jets to five and sold its executive helicopter. The move follows criticism from activist investor D.E. Shaw, which called on the company to contain what it saw as unnecessary costs. (St. Louis Business Journal)

KC-area grain supplier files antitrust suit against railroads
Overland Park, Kansas-based Lansing Trade Group is suing four U.S. railroads, claiming they’re colluding to increase transportation rates. The lawsuit names BNSF Railway, CSX Transportation, Norfolk Southern Railway and Union Pacific Railway, which together control about 90% of U.S. rail freight traffic. (Kansas City Business Journal)

Grain Belt Express to add broadband access to Missouri line
Invenergy, the Chicago-based developer of the Grain Belt Express, announced Thursday that it would include broadband capabilities along the Missouri portion of the 800-mile electric transmission line. The move, which Invenergy claims will come at no cost to Missouri taxpayers, comes as the company looks to shore up public support for the project. (Kansas City Business Journal)

Bayer faces Canadian antitrust probe
Newly unveiled court documents show Bayer and several other major agricultural companies are under antitrust investigation by the Canadian Competition Bureau. The companies are accused of having tried to block an online farm-supply startup in Western Canada. (Reuters)

Peabody cedes board seats to activist investor after revenue drop
The St. Louis-based coal giant reported fourth-quarter revenue of $1.1 billion, down from $1.4 billion a year earlier. In response, Peabody suspended dividends, cut expected capital expenditures and said it would emphasize debt reduction this year and consider selling at least one mine. The company also agreed to appoint to its board two executives from the hedge fund Elliott Management, Peabody’s largest shareholder. (St. Louis Post-Dispatch)

O’Reilly Automotive tops $10 billion in sales
The Springfield-based auto parts retailer posted a record revenue of $10.1 billion for 2019, up 6.4% over last year. O’Reilly reported net income of $1.4 billion, up 5% from 2018, and had 5,460 stores at the end of 2019, compared to 5,219 a year earlier. Revenue met Wall Street expectations, but earnings fell short of analysts’ estimates. (Springfield Business Journal, Yahoo Finance)

St. Louis lawmakers to introduce MLS stadium bill
The St. Louis Board of Aldermen is scheduled to introduce a pair of bills Friday advancing a redevelopment plan and master redevelopment agreement for the proposed $461 million soccer stadium in downtown St. Louis. (St. Louis Business Journal)

Projected ticket prices released for St. Louis soccer stadium
A newly obtained financial impact memo pegs general admission tickets for the proposed stadium at $34.50 a seat, club tickets at $40 a seat and suite seats at $50 a seat plus additional fees for amenities. According to the memo, the stadium is expected to sell 92.8% of general admission tickets and 100% of club and suite tickets in the first year of operation in 2022. (KSDK)

Ozarks casino proposal moves forward in Missouri House
The House Special Committee on Government Oversight on Thursday advanced a proposed constitutional amendment to allow casinos around the Lake of the Ozarks. If passed by the legislature, the proposal would go before voters on a statewide ballot. (Associated Press)

St. Louis Arch attendance down, despite $380 million renovation
Tram ticket sales at the Gateway Arch were down 11% in 2019 and total attendance remained stagnant at around 39,000, despite a $380 million renovation that was completed in July 2018. Backers of the five-year renovation argued that the project would boost visitors by up to 33% in the first two years after completion, adding upwards of $114 million in new state tax revenue over 25 years. (St. Louis Business Journal)

Illinois woman bequeaths $45 million to St. Louis Opera Theatre
Phyllis Herndon Brissenden of Springfield, Illinois, has left a $45 million bequest to the Opera Theatre of St. Louis, more than doubling its endowment from $35 million to about $80 million. Brissenden, who died at age 86 in December, had been a board member and donor to the theater since it opened in 1976. (Associated Press)

Bloomberg buys over $4 million Missouri ads
Former New York Mayor Michael Bloomberg has spent over $4 million on political ads in Missouri, according to a firm that buys political ads in the state. In St. Louis alone, the billionaire Democrat running for president has spent an average of around $116,000 a week on local TV ads ahead of the state’s presidential primary on March 10. (St. Louis Public Radio)

St. Louis CEO gets 22 months in prison for defrauding Enterprise Bank
Mary Ann Gibson, former CEO of account marketing firm Mozaic Group, was sentenced Thursday to 22 months in federal prison for fraud that cost Enterprise bank and Trust $2.5 million. Prosecutors said Gibson falsified earnings records and invoices in order to obtain a line of credit from the bank in 2016. (St. Louis Post-Dispatch)


Say that again

“That will be the next crisis because we’re behind on that and we’re digging out of that hole.”

That’s what new Jackson County Administrator Troy Schulte told local lawmakers this week regarding government efforts to reevaluate and potentially refund property taxes, which went up for many residents after a controversial assessment last year, KCUR reports. Property owners in the area made 21,000 appeals last year, the most in county history. So far, the county has only ruled on about half of them. The county may refund some 2019 taxes if valuations are reduced upon reexamination. However, Schulte said, the county is already falling behind on the appeals due to an “obsolete” computer system. He also warned taxpayers they should brace for another rocky assessment in 2021 and possibly beyond, pointing to data that suggest big assessment hikes in at least eight county neighborhoods.


Go figure

$40.7 million

That’s how much the Cortex innovation district has netted the city of St. Louis in new taxes from 2014 through 2018, according to a new impact study commissioned by Cortex. The report says that public investment in the nonprofit redevelopment entity has led to $700 million in private development. In 2013, the city approved roughly $168 million in tax increment financing in the district, around $111 million of which has been committed to real estate developments and public improvements, the St. Louis Post-Dispatch reports. Today, the district houses nearly 5,800 workers and boasts a total payroll of around $450 million at about 400 companies, according to the report.


Hello, my name is

Perficient

After two decades of an acquisition-focused strategy, this technology consulting firm in Town and Country is looking to boost its expansions with organic, in-house growth, the St. Louis Post-Dispatch reports. In the past two decades, Perficient has bought more than three dozen companies, which has helped it become one of the fastest-growing companies in the St. Louis area. That acquisitive approach has helped the company triple its revenue over the last 10 years, to $566 million in 2019. While Perficient is far from forgoing M&A, the firm is switching gears with the hopes that 2020 will bring more organic growth. With a reinforced sales staff and digital marketing capabilities, Perficient is shooting for 10% internal growth this year. It’s also considering more offshoring opportunities. Currently, about 75% of Perficient’s employees are based in the U.S., accounting for about 90% of the company’s revenue. CEO Jeffrey Davis said that figure may drop slightly to 85% by the end of the year as he considers possible acquisitions in Latin America.


It’s been a pleasure doing business with you this morning. Have a great weekend.


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