Hedge fund wants funeral provider shakeup
NEW ORLEANS — A major shareholder of Stewart Enterprises Inc. is calling for a shake-up at the funeral provider, calling it “a mismanaged company operating in an attractive industry” — a charge Stewart strongly denies.
JC Clark Ltd., a Toronto hedge fund, says Stewart should form a special independent committee of directors to consider increasing its annual dividend, stock buybacks or an outright sale of the entire company. JC Clark owns about 2.5 percent of Stewart’s common shares.
Stewart’s management stoutly defends its record in the industry of providing funerals and cemetery plots.
Stewart is the second-largest funeral provider in the United States, owning and operating 218 funeral homes and 141 cemeteries in the United States and Puerto Rico.
“JC Clark has been a long-term shareholder of Stewart, owning shares in the company for over 10 years,” the firm said in a statement. “However, during this time, it has become increasingly apparent that Stewart’s senior management and board of directors have failed to create meaningful shareholder value.”
In 2008, rival funeral provider Service Corp. International offered $11 per share for Stewart. Stewart countered with a demand for a higher offer and that Service assume all responsibility and risk for gaining regulatory approval. Service then withdrew its takeover bid.
Since the offer was withdrawn, Stewart shares have lagged well behind the $11 offer. Shares closed Wednesday at $6.49 and have traded in a 52-week range of $5.11 to $8.39.
JC Clark said that Stewart’s revenue growth has underperformed its publicly traded rivals in North America and its earnings — before interest, taxes, depreciation and amortization — have declined over the past seven years. The hedge fund also said that $178 million in capital expenditures over the last seven years had failed to reverse the trend.
“This prolonged misuse of capital has destroyed shareholder value, and clearly demonstrates the ineffectiveness of Stewart’s current and previous management teams,” JC Clark said.
In a statement, Stewart disagreed with JC Clark’s portrayal of its performance.
The company said the stock market “has overreacted to current economic conditions when valuing our company, and is not taking into account the long-term value of our company in more normalized circumstances.”
Stewart said that shareholder returns, adjusted for dividends, had hit 73 percent over the past eight years and were the highest among the three publicly traded funeral providers. The company also said it was generating strong cash flow and had just completed its best fiscal year in the past three years.
Over six years, Stewart said it had generated more than $65 million in free cash flow annually, repurchased 23 percent of its common stock for $175 million, reduced debt by $87 million, or 21 percent, at $26.5 million less than its face value and paid $60 million in dividends while raising its dividend 40 percent.
The company also said much of the revenue and earnings growth generated by competitors had come through acquisitions and not internal growth. Stewart, which made $9.1 million in acquisitions last year, said such purchases “must be approached prudently and consummated at reasonable prices in order to produce profits over the long term.”
Company senior vice president Martin de Laureal also said Wednesday that six of Stewart’s seven board members currently are independent.
“We simply disagree with the position this investor has taken,” he said.