Angelica Corporation
(NYSE:AGL) shares rose $0.94, or 4.46%, to $22.03 today after Pirate
Capital disclosed a 9.8% stake and urged the company to hire an
investment banker to explore strategic alternatives. The activist hedge
fund insisted that the company's failure to improve operating results
has eroded shareholder value and demanded that the company explore how
to unlock this value.
Pirate Capital's letter to the Board of
Directors indicated a disappointment in management's ability to improve
operating results. The company painted a picture of a turnaround by
projecting a 7 to 10 percent increase in organic growth in April 2006;
however, actual numbers for subsequent quarters turned out to be 0.2%,
0.6% and 0.7%. This prompted the activist hedge fund to recommend that
the company hire an investment banker to explore ways in which value
could be unlocked through a sale of the company, an asset sale or other
extraordinary transactions.
Pirate Capital is well known in the
markets as one of the premier activist hedge funds, but experienced
some problems late last year when lackluster returns led to a pullout
by many of its investments. Regardless, the hedge fund is now back on
its feet and working to re-establish its trackrecord by focusing on
niche activist opportunities in the marketplace. The strong M&A
environment along with optimism amongst shareholders may help them with
their push to put AGL up for sale without a fight. However, Pirate
Capital said it would nominate its own slate of directors at the
company's next annual meeting if necessary.
Overall, Angelica
Corporation is an under-performing stock trading at a discount to its
peers. Pirate Capital, a well-known activist, is acting as a catalyst
to help push the company to explore strategic alternatives. If they
eventually comply, shareholders could see significant upside from any
sale, asset sale or other extraordinary strategic transactions. This
makes AGL a stock
worth watching!
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