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Must-know: JANA Partners discloses activist position in Civeo

Part 2
Must-know: JANA Partners discloses activist position in Civeo (Part 2 of 6)

JANA to push for Civeo’s real estate investment trust conversion

JANA Partners to push for Civeo’s REIT conversion

JANA Partners disclosed an activist position in the workforce accommodation service provider Civeo (CVEO), which was spun-off from Oil States International (OIS) earlier last month.

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Activist investor JANA’s 13D filing said the fund believes that Civeo’s “shares are undervalued and represent an attractive investment opportunity.” It further said that it will continue to discuss with the management “regarding a potential real estate investment trust (or REIT) conversion, Civeo’s capital structure and capital allocation policy, strategic acquisition strategy, corporate structure and assets, and board composition.” The fund added that it may also seek to discuss other topics including management, strategy and future plans. It may take other steps to bring about changes to increase shareholder value.

According to a July press release by OIS, the accommodations business was to be spun-off as a C-Corporation, which offers a faster path to separation. The company will continue to assess the feasibility and advisability of a potential future conversion into a REIT. In case of conversion, JANA could benefit as an REIT is required to distribute 90% of its U.S. taxable income to its shareholders in the form of dividends.

Civeo’s strategy, as outlined its in presentation, is to “actively pursue accretive acquisitions that enhance scale
and support market entry.” It said that it employs a “buy and build” strategy for acquisitions. It buys cash flow producing assets in complementary markets and grows those assets organically. The company cited the MAC Services Group acquisition in December, 2010, as an example of its buy and build strategy in Australia. The MAC, which had 5,210 rooms at the date of acquisition, has increased the count by 78% through the addition of 4,052 rooms to that portfolio.

Civeo’s chief executive officer Bradley J. Dodson said in its 1Q earnings release that, “Our focus remains to grow our operations both organically and through acquisition. As a company solely focused on workforce accommodations with a strong financial position, we look to augment our organic growth in Canada with strategic acquisitions in our core markets of Canada and Australia.” The acquisitions will help generate revenues from existing and new customers and obtain greater market share.

JANA co-portfolio manager, David DiDomenico said in an interview with Barron’s in May that, “Given the stability of that (accommodations) business and its underlying characteristics, it should trade more in line with, say, real estate investment trusts.” The manager further compared Civeo to a nontraditional REIT such as Corrections Corp. of America (CXW), which he said “trades at nearly 13x forward EBITDA.” Other nontraditional REIT conversions include billboard companies CBS Outdoor Americas (CBOS), which was spun-off from CBS Corp. (or CBS), and Lamar Advertising Co. (LAMR) that received Internal Revenue Service approval earlier this year.

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