Sachem Head takes $1.2 billion position in Elanco, stock price surges

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Scott Ferguson, Managing Partner and Portfolio Manager for Sachem Head Capital Management LP, presents during the 2018 Sohn Investment Conference in New York

By Svea Herbst-Bayliss

BOSTON (Reuters) – Hedge fund Sachem Head Capital Management said on Wednesday that it owns a $1.2 billion stake in Elanco Animal Health Inc and plans to push for changes at the company that makes medicines and vaccinations for pets and livestock.

The New York-based hedge fund, run by Scott Ferguson, said in a regulatory filing the Greenfield, Indiana headquartered company’s stock is “undervalued” and an “attractive investment.”

Ferguson raised cash for the position through a so-called special purpose vehicle over the last months and his hedge fund now owns a 9.1% stake through stock and options.

The hedge fund intends to speak with Elanco management and sees opportunities to boost sales and improve margins, a person familiar with Sachem Head’s plan said.

Elanco’s stock price jumped 12.04% to $31.63 on news of Sachem Head’s involvement. A company spokeswoman said management is focused on “enhancing value for all shareholders and will continue to take actions to achieve that objective.”

Sachem Head has experience with animal health companies having invested with Elanco competitor Zoetis in 2014.

Elanco, valued at $14 billion, has lagged its rival with its shares up only 5.4% from a year ago, while Zoetis’ stock has climbed 27% during the same time.

Bloomberg first reported the stake in Elanco.

Sachem Head was founded in 2012. Previously it called on Whitbread PLC to sell its Costa Coffee business before it was spun off to Coca-Cola Co and it pushed Eagle Materials Inc to split its core businesses, before the company’s board agreed to spin off its heavy materials and light materials businesses into two publicly traded entities.

(Reporting by Svea Herbst-Bayliss; Editing by Bernadette Baum and Chris Reese)

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