ValueAct takes stakes in Recruit and Expedia, says they are poised for strong growth

Recruit Holdings

15/11/2023 16:59

(Adds stock price movement, comment from Recruit Holdings,
paragraphs 3 and 8)
    By Svea Herbst-Bayliss
       NEW YORK, Nov 15 (Reuters) - ValueAct Capital Management
has bought stakes in job-search site Indeed's parent Recruit
Holdings  6098.T  and in online travel services provider Expedia
Group  EXPE.O  and believes both are poised for strong growth.
    The investment firm announced the new positions, without
revealing the sizes, in a letter to clients on Wednesday which
was seen by Reuters. Recruit is valued at roughly $49 billion
while Expedia has a market value of about $17 billion.
    Recruit Holdings' American depository receipts  RCRUY.PK 
are traded over-the-counter and rose nearly 8% on Wednesday
while Expedia's stock price gained 7.5%
    ValueAct said the two companies were set to benefit from
smarter pricing, better cost management and shrewd modernization
of the services used to run websites. 
    A ValueAct spokesman could not be reached for comment.
    ValueAct said in the letter it believes Recruit's assets are
already worth double the company's share price. But it feels
investors have not been fully aware of the opportunity because
the parent company is listed in Tokyo. It noted that Indeed,
which contributes 45% of Recruit's earnings, is based in Austin,
Texas.
    "We believe Recruit's management team is driving hard at
improving monetization and profit margin of the internet
platforms to levels far above its current state," the letter
said. "With smart capital allocation we can see a path to
per-share annualized return above 30%."
    "We appreciate ValueAct's investment in Recruit, as we
believe it is a recognition of the value and long-term potential
of our company. We look forward to having ValueAct as a
shareholder and continued engagement," a Recruit spokesperson
said.
    At Expedia, whose stock price has rocketed by 25% since it
reported earnings earlier this month, investors are seeing an
acceleration in growth and margins climbing to their highest
levels in a decade, ValueAct wrote.
    Expedia did not immediately respond to a request for
comment.
    Unlike other investment firms that routinely push for change
publicly and often ask for board seats at target companies,
ValueAct prefers to work with management behind the scenes.
    It praised leaders at Recruit, noting management is already
focusing more sharply on costs, and at Expedia, where the CEO
focused on rebuilding many aspects of its business when the
pandemic shut down travel.
    The firm also said it was ready to help each company, noting
it has experience in Japan and has been involved with technology
companies like Microsoft  MSFT.O  and Salesforce  CRM.N ,
working to improve the way they do business.
    But it also said there is work to be done at the two new
target companies, citing the need for better pricing and ongoing
cost management.
    ValueAct CEO Mason Morfit was invited onto Salesforce's
board this year and the stock price has surged 64% since
January. 
    ValueAct has also been investing more frequently in Japan in
recent years, including at Seven & I  3382.T  where it tried but
failed to oust four directors this year.
    On Tuesday, ValueAct said in a regulatory filing that it
established new positions in Illumina  ILMN.O , Danaher Corp
 DHR.N , Roblox Corp Class A shares  RBLX.N  and Alarm.com
Holdings  ALRM.O  during the third quarter. ValueAct has also
built a new stake in Disney  DIS.N , sources said on Wednesday.

 (Reporting by Svea Herbst-Bayliss in New York
Additional reporting by Makiko Yamazaki in Tokyo
Editing by Edwina Gibbs and Matthew Lewis)
 ((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))