Inclusive Capital’s Jeff Ubben named to Vistry board. What could happen next

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Inclusive Capital's Jeff Ubben named to Vistry board. What could happen next

A contractor operates a roller at the construction site of HS2 Ltd super hub station on Wednesday 23rd June 2021. Old Oak Common in view of Vistry Partnerships Oaklands House redevelopment project in London, UK.

Luke McGregor | Bloomberg | Getty Images

Company: Vistry Group (VTY.L)

Business: Vistry group operates as a home builder in the UK, active in both the open market and affordable housing sectors. They aim to develop sustainable new homes and communities across all sectors of the UK housing market. On November 11, 2022, Vistry acquired Countryside Partnerships for £1.25 billion ($1.4 billion). Vistry operates on a partnership model unique to the UK which seeks to reuse land wherever possible and focuses on mixed ownership developments that have positive social impact. Operating in 19 divisions, the partnership business works closely with government agencies, housing associations and local authorities, selling homes directly to open market buyers.

market value: $3.09 billion

Activist: Inclusive Capital Partners

Percentage ownership: 5.9%

average cost: n / A

Activist Comment: Inclusive Capital Partners is a San Francisco-based investment firm focused on increasing shareholder value and promoting sound environmental, social and governance practices. It was founded in 2020 by ValueAct founder Jeff Ubben to harness capitalism and governance in the pursuit of a healthy planet and the health of its inhabitants.

As a pioneering ESG activist investor (AESG), Inclusive strives for long-term shareholder value through active partnerships with companies whose core businesses provide solutions to this pursuit. Their primary focus is on creating environmental and social value, which leads to the creation of shareholder value.

What’s up?

On Wednesday, Vistry announced the appointment of Ubben von Inclusive as non-executive director of the board and the forthcoming resignations of two acting directors, Katherine Innes Ker and Nigel Keen.

Backstage

Vistry landed on Inclusive’s radar as a result of their involvement with another company – Countryside Partnerships. In May 2022, Inclusive had a 9.2% stake in Countryside and had made two bids to take over the company, valued at up to £1.5bn. Both offers were rejected.

However, Inclusive’s interest sparked significant shareholder pressure to sell Countryside, and the following month the company announced it was looking for a buyer. On September 5, 2022, Vistry agreed to acquire Countryside in a cash and stock deal that closed on November 11, 2022.

In the four months since Countryside was acquired, the market has reacted positively to the combination. Inclusive led the merger and now takes an active role in the merged company.

Vistry operates on a partnership model where land is provided to them by state land agencies free of charge and they commit to building a specified amount of affordable housing. They build mixed-ownership communities, placing affordable housing between open-market housing, retail stores, etc. This model has the advantages of a secular shift to affordable housing and is low-investment because they don’t have to purchase the land. The company trades cheaply at 7 to 8 times earnings and has strong growth prospects complemented by the community benefits.

Inclusive said Vistry’s business model gives it the scale, operating synergies and resources to deliver societal benefits and great long-term returns.

On Wednesday, Ubben was appointed director and two board members, Innes Ker and Keen, resigned. Inclusive is a friendly investor who is often invited to committees. This situation is no exception. However, the departure of two incumbents alongside the appointment of Ubben suggests shareholders were demanding a bigger refresh of the board than just the addition of a shareholder representative. Although this type of move is somewhat unusual for a European company, it should be noted that the company’s top five shareholders, representing 40% of the shares, are all North American investors, who are more likely to engage with management than European investors.

This leaves a board that is in the process of being refreshed and a CEO that is universally popular and on the same side of shareholders that opens the door to a methodology that has worked very well for Ubben for more than 20 years, to ValueAct – let a good management team continue to generate cash flow and sit on the board and help advise on how best to use that cash flow.

One tactic he’s used successfully in the past to increase shareholder value is to buy back shares on the ground and keep cash when the company is fairly valued.

After all, as with all inclusive investments, it has both an impact element and a value element. The AESG thesis here is evident as the core purpose of this company is to promote social equality – the development of affordable, sustainable housing. What is interesting from an ESG perspective is that it is a social ESG thesis, which is generally the most difficult type of ESG thesis to monetize. But in this case, the community benefits align so perfectly with the company’s growth prospects – company growth means more affordable housing.

Ken Squire is Founder and President of 13D Monitor, an institutional research service on shareholder activism, and Founder and Portfolio Manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist assets.