Activist Starboard Urges Construction Company to Explore Sale
Knife River’s stock fell over 7% Wednesday after company predicted continued headwinds
- Activist investor Starboard Value has taken a significant stake in construction company Knife River.
- Starboard plans to push Knife River to improve its margins or explore strategic alternatives, including a potential sale.
- Knife River’s stock fell over 7% on Wednesday after the company published an investor presentation detailing expected headwinds.
Activist investor Starboard Value has taken a significant stake in construction company Knife River, with plans to push the company to improve its margins or explore a sale, according to people familiar with the matter.
The details
Bismarck, N.D.-based Knife River KNF -7.86%decrease; down pointing triangle has a market capitalization of about $3 billion, with its stock down nearly 30% this year. It spun out of MDU Resources Group in 2023.
Knife River produces construction materials including the crushed stone, sand and gravel used to make asphalt and concrete. It also operates as a contractor on both public and private-sector projects.
Starboard wants Knife River to commit to narrowing the gap between its earnings before interest, tax, depreciation and amortization margins and those of its peers in the next few years, the people said. Starboard feels that spinning off Knife River into a separate company failed to meaningfully improve its margins, they said.
Starboard also wants the company to evaluate strategic alternatives including a potential sale, as it believes its business has a high barrier to entry and could be attractive to potential suitors, the people said.
The context
Construction-industry stocks have underperformed the market this year as the sector faces a pullback in residential and private commercial building.
In an investor presentation published early Wednesday, Knife River said it expects headwinds including delayed jobs and higher fuel costs to persist through the fiscal year, sending shares down more than 7%.
The company reported adjusted Ebitda margins of about 15% for the quarter ending June 30. Vulcan and Martin Marietta, two of the largest companies in the sector, reported margins of around 30% in the same period.
Starboard, run by Jeff Smith, is one of the busiest activist hedge funds. The firm last year took a nearly 5% stake in construction company Fluor, successfully pushing it to sell its stake in modular-reactor maker NuScale Power.
In 2019, Starboard took a stake in construction and engineering firm Aecom. It pushed for a strategic review that resulted in Aecom exiting the construction business.