The Morning Brief: Elliott Targets Cybersecurity Firm

June 21, 2016   Stephen Taub


Elliott Management Corp. has identified its second new activist target in the past three business days. The New York hedge fund firm on Monday evening disclosed it owns 9.8 percent of Imperva Inc., which provides cybersecurity. In a regulatory filing, Elliott says the stock is "materially undervalued," and it has initiated dialogue with management and the board of directors about ways to boost the stock price. Elliott asserts the company "operates in a highly strategic area of the technology industry with an attractive competitive position and a compelling product-set in both the web-application firewall and database-activity monitoring markets." However, Elliott, which has a long history of launching successful activist campaigns against software companies, says this value is not reflected in Imperva’s current market value. Elliott insists there are strategic and operational opportunities for Imperva "that would meaningfully increase value to shareholders." Shares of Imperva, which were down nearly 50 percent from their November high, surged nearly 9 percent in after-hours trading.

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A large number of hedge funds cashed in big-time on Monday when shares of Yelp! jumped 5.65 percent following a very bullish report from Deutsche Bank. The bank upgraded the shares of the website used to search and review local businesses to Buy from Hold and raised its price target from $26 to $33 citing "stabilized salesforce productivity, more confidence in management, and improvements in ad units and systems." In a note to clients, the bank did warn that "challenges remain" beyond 2016, but added, "we prefer to be long the shares for upside this year and better long-term optionality given increased confidence that new financial leadership at Yelp! can help drive product and monetization innovation in 2017 and beyond." At the end of the first quarter, Hong Kong–based Tybourne Capital Management was the largest shareholder, with 9 percent of the shares. Tybourne is headed by Viswanathan (Eashwar) Krishnan, who was previously a senior analyst at Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital. Dallas-based Maverick Capital was the second-largest shareholder with about 8 percent of the shares, New York-based Greenlight Capital was the fourth, while New York-based EastBay Asset Management and Chicago-based Citadel rounded out the hedge funds among the top-10 holders. The stock increased 24 percent last month and has nearly doubled since its mid-February low. However, on a calendar-basis, the stock is roughly flat.

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Hedge funds turned more bullish last week. According to the latest Bank of America Merrill Lynch Global Research report, leveraged funds last week covered $12.6 billion in short positions of Standard & Poor’s 500 futures and $1.4 billion of short positions in Russell 2000 futures. In addition, they added $2 billion to Nasdaq 100 long positions and $800 million to emerging markets. "Leveraged funds’ net position in EM [emerging markets] made a new three-year high," the report added.

BofA also stated that equity long-short funds increased their net long exposure to 44 percent from 33 percent, above the historical average of 35 percent to 40 percent net long. In addition, macro hedge funds added to their long exposure in equities and reduced their U.S. dollar short position.


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