Overview: ValueAct Capital’s new position in Armstrong

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ValueAct Capital’s new position in Armstrong

Jeff Ubben’s hedge fund ValueAct Capital disclosed in a 13D filing in August that it acquired 9,200,000 shares, or a 16.8% stake, in Armstrong World Industries Inc. (AWI). Eton Park Capital Management L.P. also recently disclosed a new 6.7% passive stake in Armstrong in a 13G filing.

AWI share price

Armstrong is based in Lancaster. It’s a global producer of flooring products and ceiling systems. The products are used in the construction and renovation of residential, commercial, and institutional buildings. It designs, manufactures, and sells flooring products that are mainly resilient and wood. Its ceiling systems are mineral fiber, fiberglass, and metal. It sells its products around the world. In 2013, Armstrong’s consolidated net sales totaled ~$2.7 billion. About 70% of its revenues are generated outside of North America in Europe. It competes with Compagnie de Saint-Gobain (or CODYY) and Lafarge SA (or LFGEF) among others.

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ValueAct’s filing indicated that it might discuss strategic alternatives such as a sale or merger with Armstrong’s management and shareholders. It also might routinely monitor the company’s operations, prospects, business development, management, competitive and strategic matters, capital structure, and prevailing market conditions. It will also watch alternative investment opportunities and other investment considerations. The filing disclosed that the shares were acquired for $335.6 million.

AWI’s revenue opportunities come from new construction as well as the renovation of existing buildings. Armstrong and other building product companies such as USG Corp. (USG), Mohawk Industries Inc. (MHK), and Interface Inc. (TILE) are impacted by macroeconomic trends. The trends influence commercial and residential market activity. The market activity includes gross domestic product (or GDP), the Architecture Billings Index, and the Consumer Confidence Index. AWI is a member of the S&P SPDR Homebuilder ETF (XHB).

ValueAct Capital Management (or VAC) is a San Francisco-based investment company that manages more than $14 billion for several institutional and individual investors. The firm was founded in 2000. It’s led by its founding partners, Jeffrey Ubben and George Hamel Jr.

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