Elliott's May 2016 letter to the board of CDK Global
- Written by
- Jesse Cohn
- Organisation
- Elliott Investment Management
- Filed
- 4 May 2016
- Sector
- Automotive retail software
Read the original at sec.gov (opens in a new tab)
This is the view as filed on 4 May 2016, not a statement of what the author thinks today.
About this letter
Jesse Cohn, a senior portfolio manager at Elliott Management, wrote this letter on 4 May 2016 to the board of CDK Global, addressed to its chairman, Leslie Brun, and its chief executive, Brian MacDonald, who had been appointed in March. Elliott's two funds together owned 8.6% of CDK's common stock and equivalents, and the firm had been in a private dialogue with the company for the past year.
CDK, which leads the market for dealer management systems sold to car dealerships, had been spun off from ADP in October 2014. The letter is warm in tone towards the new leadership but blunt about the opportunity it believes has been missed. It describes Elliott's research, explains why the business is attractive, reviews the limited progress since the spin-off, and sets out a two-pronged Value-Maximizing Plan with a share price target.
Why read it
It shows how an activist values a spin-off that was never run as a standalone company, using a direct competitor's margins and a leverage target to build a price target.
What to notice
- 1
The benchmark is a direct rival: Elliott estimates that Reynolds & Reynolds runs its North America DMS business at about 55% EBITDA margins against 30% at CDK's comparable segment, with 8 facilities globally against CDK's 80.
Continue the investment thesis
See the 3 remaining takeaways on what this investor is arguing and why, and every analysis across the Letters & Theses library.
Checking what you can open…
“CDK is profoundly under-managed”
Companies discussed
- CDK Global, Inc. (CDK)
Topics
- margin expansion
- capital allocation
- breakup or separation
- cost discipline
- valuation
L3VLUP does not host this document. It belongs to Elliott Investment Management and is a public SEC filing; the notes above are L3VLUP’s reading of it.
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