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Company: Pitney Bowes (PBI)
Company: pitney-bowes is a global shipping and courier company that provides technology, logistics and financial services to businesses, including more than 90% of Fortune 500 companies, retailers and government customers worldwide. It operates through three business segments: (i) Global E-Commerce, (ii) Presort Services and (iii) SendTech Solutions.
Market value: $666 million ($3.83 per share)
Activist: Hestia Capital Partners
Percentage of ownership: 6.90%
Average cost: $3.59
Activist Comment: Hestia is not an activist investor. On the contrary, the company is a high-value investor that will only use activism as a last resort. Kurtis Wolf, Managing Member and Chief Investment Officer of Hestia is a former strategy consultant and notably worked at Relational Investors from 2002 to 2004. The firm is experienced in corporate strategy and applies its business acumen to high value companies and struggling to determine which ones have a good path forward. As a result, Hestia often invests in companies that may be misunderstood or disfavored by the market, such as GameStop, Best Buy and Pitney Bowes. The company avoids biotech and commodity companies. Hestia’s only previous activism dates back to 2020, when he formed a band with Permit Capital and fought a successful proxy battle at GameStop.
What is happening?
Hestia has engaged with Pitney Bowes to improve the company’s capital allocation, improve operational performance and make changes to the composition of the board of directors.
In the wings
Pitney Bowes’ SendTech solutions business is the core business the company is generally known for: postage meters. It is a business in secular decline, but not on the way out, which generates significant cash flow. PBI expanded the SendTech division to include shipping labels, which is a growing business. The shipping label business has always competed with, and often lost out to, stamps.com, which became part of a massive business that was eventually acquired by Thoma Bravo for $6.6 billion. The SendTech Solutions segment represents 38% of Pitney Bowes revenue and generated $429 million in earnings before interest and taxes in 2021. The postage meter business represents 89% of division revenue and the shipping accounts for the remaining 11%.
The Global Ecommerce segment primarily comprises three components: (i) a digital technology business that sells the technology behind Pitney Bowes’ postage and shipping business, giving customers the opportunity to reduce transportation and logistics costs, select the best carrier based on needs and cost, improve delivery times and track parcels in real time; (ii) a global cross-border solutions company that handles all shipping and customs procedures for international shipping for customers like eBay; and (iii) a National Parcel Company, which is a niche e-commerce company that handles item returns and a competitor to companies like FedEx and UPS. Global e-commerce accounts for 46% of Pitney Bowes revenue, but lost $99 million in EBIT in 2021.
The Presort Services segment represents only 16% of revenues but generated $79 million in EBIT in 2021. This business derives its money from post offices and simplifies the sorting process for them. Pitney Bowes will collect mail from businesses in specific postcodes, sort the mail by postcode and forward it to post offices.
Ultimately, the business has too many activities and needs to simplify. The digital technology and presort businesses are synergistic with Pitney Bowes’ core business, as one provides it with the technology needed to operate and the other shares many of the same customers and gives them the ability to cross-selling. This means divesting the cross-border solutions business and the domestic parcels business. Neither is showing adequate levels of growth or profit. The former has single-customer concentration risk as eBay is by far its largest customer, and the latter competes with much larger companies like FedEx and UPS. Simply closing these two companies would be accretive for shareholders, and they should be able to secure cash for them from a strategic acquirer. But the biggest benefit would be management focusing on their core business and the ability to incentivize management more appropriately. Management can focus on using cash from the secularly declining postage meter business to invest in the growing shipping label business. The SendTech and Presort segments alone could be worth $6-9 per share without the distractions and dilution of other companies.
Ideally, Hestia would advocate for this plan at the board level. The company has a nine-person, non-staggered board of directors with a nomination deadline that opens on January 2, 2023. Hestia will likely need more than one board seat to drive change at Pitney Bowes. The company has been in existence for over a century and the majority of directors have served on the board for over 10 years. Marc Lautenbach is not necessarily the wrong CEO for this company. He just lost focus with his attention drawn in so many different directions. A more streamlined core business with him as CEO could work very well. The company could benefit from a shareholder representative with a keen sense of business strategy, and we would expect Hestia to include Kurtis Wolf in its slate of candidates alongside some experienced industry executives. With universal proxy now in play, we would expect Hestia to appoint up to four directors to give shareholders more choice.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments 13D. Squire is also the creator of the AESG™ investment category, an activist style of investing focused on improving the ESG practices of portfolio companies.