The first casualty at companies targeted by activist investor Paul Hilal, who announced about two weeks ago that he had set his sights on Aramark, is typically the chief executive.
That happened within days at the Philadelphia food- and uniform-services giant. Aramark said on Monday that CEO Eric Foss is retiring. Usually it takes months of wrangling with his targets’ boards of directors.
What’s next for Aramark? If Hilal’s past is any indication, job cuts could be in the cards for the company that employs about 6,500 workers in the Philadelphia region.
Hilal’s New York firm, Mantle Ridge LP, said in the Aug. 16 Securities and Exchange Commission filing that it owned 24 million Aramark shares, or 9.8% of the company — additional interests give Mantle Ridge a claim on 20% of the company in all. The value of the firm’s direct stock holdings has climbed to $966 million from $892 million the day of that filing.
In its SEC filing, Mantle Ridge put everything on the table. Hilal said he wanted to discuss Aramark’s “business, operations, strategies, governance, the composition of the executive suite and board” with the current board, management, and other stockholders. In the past, Hilal has taken years to get what he wants out of companies, making it unlikely that he expects a quick fix at Aramark, whose growth has lagged that of its chief rival, Compass Group.
Aramark said Monday that Foss and the current board decided together that Foss would leave, with no input from outsiders. Besides Wall Street analysts’ unhappiness with the pace of sales growth at Aramark, Foss was under fire from rank-and-file employees who blamed him for the company’s last-minute decision to not pay earned bonuses for thousands of midlevel managers.
Despite the lack of detail from Hilal, analysts welcomed the news of his interest in Aramark, given his track record of long-term activism at Air Products & Chemicals Inc., Canadian Pacific Railway, and CSX Corp.
“We would expect active board level participation, installing first-class management, significant focus on operating performance and customer service,” Stifel analyst Shlomo Rosenbaum wrote in an Aug. 19 note to investors. “We would expect to see more of an aggressive sales culture inculcated into the organization, changes to incentive compensation, much more focus on operational efficiency and prudent use of capital.”
A spokesperson for Hilal declined to comment Wednesday.
The 53-year-old investor founded Mantle Ridge in 2016 after spending about a decade at Pershing Square Capital Management, William Ackman’s activist hedge fund that started stumbling before Hilal left. The two were undergraduate roommates at Harvard University, according to numerous news articles.
While at Pershing Square, Hilal made a name for himself spearheading Pershing’s $1.4 billion investment in Canadian Pacific Railway. Key to that deal was Hilal’s success at talking Hunter Harrison — called a “railroad whisperer” by Investor’s Business Daily — out of retirement in 2012 to run the underperforming Canadian railroad after a hard-fought proxy contest.
Hilal was on Canadian Pacific’s board from 2012 to 2016. During that time, the value of Pershing’s $1.4 billion Canadian Pacific investment climbed to nearly $4 billion, according to a 2016 article in the Journal of Applied Corporate Finance.
In that Journal article posted on Mantle Ridge’s website, Hilal touted the success of activist investing:
“Today Canadian Pacific is shipping 20% more freight than it did before we started, or than it has ever shipped in the past. And it’s shipping that freight 40% faster than ever, with record on-time performance, 40% fewer locomotives, 35% fewer people, and 14% improved fuel efficiency — all while maintaining an industry-leading safety record.”
Hilal defended the job cuts by saying that all but 500 of the 6,000 workers who lost their jobs took early retirement.
“Between the exit packages and the opportunity to be gainfully employed at healthy companies that needed them, I think it is hard to view the large majority of those employees as losers,” he said.
Also at Pershing Square, Hilal was involved in a 2013 effort to win three board seats at Air Products, of Allentown, and replace the CEO. The new CEO “cut costs, spun off Air Products’ electronic materials segment, shut its energy-from-waste business, and sold its performance materials business, ultimately refocusing on the core industrial gas business,” analysts at RBC Capital Markets noted in a research report.
After leaving Pershing Square in 2016, Hilal started out on familiar territory, investing in CSX Corp., a railroad operator based in Jacksonville, Fla., and engaging a proxy fight in early 2017 to win a seat on the board for himself and to bring Hunter Harrison over from Canadian Pacific to run the company.
Harrison followed his usual playbook of instituting efficiencies by changing how trains are assembled in rail yards, tightening schedules, and laying off unneeded workers, but he died in December 2017, just nine months into his tenure. He was 73.
The number of employees at CSX fell to 22,500 at the end of last year from 27,000 in December 2016, just before Hilal publicly moved on the company.
Apparently the changes Harrison made took root before his death and paid off for shareholders. CSX shares climbed to a peak of nearly $80 this year from $37.88 on Jan. 17, 2017, the day before word got out that Harrison was ready to leave Canadian Pacific for CSX.