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With the doldrums of summer settling in, and markets looking weak, activist managers are getting to work trying to drum up returns by shaking up companies.
MDS Inc. has been the target of an activist hedge fund for more than two months, but the attempt by shareholder Obrem Capital Management to force the company to sell assets isn't likely to create much action in the short term, according to Scotia Capital analyst John Maletic.
"While Obrem has stepped up its efforts to get a strategic review of the company, they will need to get other large shareholders and management on board before any concrete action is taken," Mr. Maletic wrote, saying that because "the timing and likelihood of such an event is uncertain, and since we see few other catalysts to move the stock over the next several months" he is leaving his one-year target at $20, below the $23-$25 breakup value that he (and Obrem) put on MDS.
Obrem could make waves if it can get the backing of ValueAct Capital, another activist firm and the biggest MDS shareholder with 19 per cent of the company. The problem for Obrem is that MDS has made moves to keep ValueAct in the fold, giving the firm a seat on the MDS board.
MDS' most valuable asset is likely its analytical technologies division, which makes tools for drug research. Obrem estimated in a letter to MDS's board that the unit could fetch $1.5-billion in a sale. However, Obrem's suggestion is that the company sell its Nordion division, which makes isotopes for cancer treatment, in hopes of raising $1-billion to buy back stock.
Obrem first emerged as a big shareholder in April, saying it controlled 5.1 per cent of the company's stock and demanding sales of unspecified assets. The New York-based firm stepped up its campaign last week, saying it had upped its stake to 5.3 per cent and had the economic benefit of an additional 2.2 per cent stake via derivatives. In its most recent filing, Obrem took aim at the company's board:
"Our conversations with management and the board of directors to date, while constructive, have not given us comfort that they share shareholders' strong interest in seeing value unlocked in the near term," the firm said.
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