- Ananym redoubles push to persuade LKQ to sell European business
- Hedge fund says there are buyers interested in the European business
- Proceeds from a sale could be used to reduce leverage, buy back stock
NEW YORK, Oct 31 (Reuters) - Ananym Capital has intensified its call for auto-parts supplier LKQ to sell its European business, stressing that there are interested buyers and that the proceeds could be used to buy back shares, according to a letter to LKQ's board on Friday that was seen by Reuters.
The letter, following close on the heels of the company's third-quarter earnings report the day before, pressed the activist hedge fund's point that keeping the European and North American businesses together makes little sense.
"While management continues to pursue the arduous task of trying to integrate the disparate collection of businesses that comprise the EU business, LKQ continues to suffer from a substantial sum-of-the-parts discount and to dramatically lag its peers in share price performance," the hedge fund wrote.
A representative for LKQ said: “We regularly engage with our shareholders, but we do not comment on the details of those discussions.”
TOTAL RETURN ON LKQ STOCK LAGS PEERS OVER PAST YEAR
On Thursday's earnings call with analysts, CEO Justin Jude said: "The challenges in Europe affect the entire industry but LKQ excels in such environments, as shown by our own success in North America. Having integrated businesses in tough settings before, I am confident we can achieve similar results in Europe."
The strong North America performance powered a more than 5% rise in LKQ's stock during Thursday's session, but its close at $31.16 left it down more than 16% for the past 12 months.
Ananym's letter noted that the total return on stock in LKQ, which has a market value of $8 billion, has lagged its proxy peers by 33% over the last 12 months, by 113% over the last five years, and by 253% over the last decade.
It added that, instead of trying to integrate 20 REP software systems across 900 locations in 18 different countries in Europe, management should talk to potential buyers who could handle the integration and free up LKQ executives to concentrate on running its "crown jewel NAB (North America) collision business."
PUSH FOR SEPARATION
Management could use the proceeds from selling the European business to reduce leverage and buy back shares, which would create more benefits for shareholders than trying to run the European business in the coming years, the hedge fund said.
Ananym has been holding discussions with Chicago-headquartered LKQ in recent months and has been largely complimentary of the company's CEO, Jude, who was named to the position in July 2024.
But in late summer, the hedge fund stepped up its push for a separation or sale of the European business after disappointing second-quarter earnings, when investors pushed the stock price down more than 20%.
The company has taken steps to simplify its portfolio, and in August announced the sale of its self-service segment to private-equity firm Pacific Avenue Capital Partners.
Ananym was founded last year by Charlie Penner, the architect of a massive three-board-seat victory at Exxon Mobil in 2021, and former P2 partner Alex Silver.
Reporting by Svea Herbst-Bayliss; Editing by David Holmes and Edmund Klamann
Source: Reuters