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Elliott Management Corp. demanded German classifieds group Scout24 AG split itself in two and pursue a bigger share buyback to boost investor returns after a sale of the company fell through in May.
The U.S. activist investor, which disclosed a 7% stake in Scout24 on Monday alongside a letter laying out its position, said the company should sell its car listing business and focus on its real-estate unit, a move that Elliott predicted could lift the stock close to 65 euros a share. That’s well beyond the company’s previous record and more than twice its initial-public offering of 30 euros in 2015.
“We believe there is a growing demand among a wide array of stakeholders for Scout24’s leadership to demonstrate a level of urgency that has thus far been lacking,” Elliott said.
Scout24 has been vulnerable to an activist since its shareholders rejected a 46-euro-per-share offer from private equity firms Blackstone Group LP and Hellman & Friedman in May. Last month, the company announced it would simplify its structure to better focus on its two biggest businesses -- auto and real estate -- as well as pursue a 300 million-euro ($334 million) share buyback. For Elliott, the moves aren’t enough.
The stock is now trading near its record high, closing Friday at 50.25 euros, and is up about 25% this year. The shares rose 0.7% as of 12:08 p.m. in Frankfurt, while the broader Stoxx Europe 600 Index was down 1.6%.
Elliott said it has outlined its views for a breakup of Scout24 in meetings with managers of the company, whom it said should never have recommended the Blackstone-Hellman & Friedman offer.
The AutoScout24 car business and the Immobilienscout24 real estate unit “do not have any material synergies sitting under one roof,” Elliott said, arguing that the existing structure doesn’t allow for resources to be allocated efficiently across divisions and employees don’t have proper incentives.
In a statement, Scout24 said it has had active discussions with shareholders including Elliott in the past few months, before and after announcing its new strategy and committed to continue the dialogue.
“We have announced comprehensive steps to strengthen both core businesses, continue to grow revenue while increasing operational efficiency and capital structure optimization,” Scout24 said.
There is rumored or confirmed interest from potential buyers in AutoScout24, and Immobilienscout24 is worth more than 5 billion euros ($5.6 billion) alone, almost as much as the entire company, Elliott said.
A number of competitors could bid for AutoScout24, Germany’s second-biggest car listings business after EBay Inc.’s Mobile.de, with 1.1 million listings and 1.5 million listings, respectively.
Softbank Group Corp.-backed Auto1 Group GmbH has expressed interest in buying the business in the past, according to people familiar with the matter, who asked not to be identified because the deliberations were private. And German publisher Axel Springer SE, which is being acquired by KKR & Co., has been seen as a potential suitor by analysts at Liberum, who valued AutoScout24 at 2.3 billion euros in a note last month.
Spokeswomen for Auto1 and Axel Springer declined to comment.
Elliott’s six-page letter to Scout24, dated July 26, outlines what the activist sees as the company’s potential, what it views as “missed opportunities” and its opinion on Scout24’s path forward. Addressed to Chief Executive Officer Tobias Hartmann and Supervisory Board Chairman Hans-Holger Albrecht, it’s replete with strong criticisms. Elliott said Scout24’s current share buyback plan was “grossly lacking in ambition.”
The investor complained that Scout24’s executives had heard the fund’s ideas privately and promised to give feedback on its proposals, but instead issued a July 19 press release with its strategy update that “widely missed the mark,” according to Elliott.
Elliott in Germany
Scout24 adds to Elliott’s campaigns in Germany, where it has recently targeted pharmaceutical giant Bayer AG, software company SAP SE and industrial firm Thyssenkrupp AG.
Elliott wants Bayer to settle legal claims linked to products from its Monsanto unit to unlock shareholder value. SAP has pursued a restructuring since Elliott disclosed a 1.2 billion-euro stake in April. At Thyssenkrupp, the chief executive officer and chairman resigned following criticism from investors including Elliott, who derided the company’s slow turnaround and what they see as its poor share price performance.
(Updates with Scout24 statement in eight paragraph, context throughout.)
--With assistance from Frank Connelly.
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