March 3, 2021

DealBook: An Activist Investor With a Quiet Voice, but a Firm Hand

Russell Glass of RDG Capital, the activist investment firm, has set his sights on his latest target: DST Systems.Evan Sung for The New York TimesRussell Glass of RDG Capital, the activist investment firm, has set his sights on his latest target: DST Systems.

Some 20 investors and analysts recently gathered at the Princeton Club in Manhattan, united by one common thread: their frustration over the stock growth of a financial data processor, DST Systems.

Hoping to capitalize on that frustration was the soft-spoken host of the meeting, Russell D. Glass of RDG Capital, who had offered to buy out DST but had been rejected by management. He outlined why the company needed some shaking up

The approach is the latest effort by Mr. Glass to practice his own brand of activist investment, one punctuated not by bluster but by a quiet insistence that companies should consider selling themselves or breaking their holdings apart.

Mr. Glass says that he now has the support of investors holding about 25 percent of DST’s shares. Last week, he sent a letter to DST’s board, demanding board seats for himself and two independent directors, according to a person briefed on the matter.

“As a shareholder advocate, we felt that it was important that the company reconsider its position and give shareholders the opportunity to be heard,” Mr. Glass said in an interview. “It’s not to have management decide for shareholders what’s best for them.”

Mr. Glass is considering whether to begin a proxy fight at DST, as well as whether to bid for some of the company’s noncore assets.

A DST spokeswoman declined to comment.

Mr. Glass and his fellow activists have been increasingly active over the last year, prodding companies to change their strategies to bolster shareholder value. Carl C. Icahn, Mr. Glass’s onetime boss, has helped spur Genzyme’s $20.1 billion sale to Sanofi-Aventis, and has spoken out against a half-dozen companies like Motorola Mobility.

In person, Mr. Glass bears little resemblance to his former employer: He is short and bespectacled, and has been relatively restrained in his criticism of management teams. He said that he had invited DST executives to attend the shareholder meeting in Manhattan, but that they had declined the offer.

“Obviously I have my own personal style,” Mr. Glass said. “I speak more softly, but still carry a big stick.”

After years of betting on merger outcomes at L.F. Rothschild and Kidder Peabody, Mr. Glass joined Mr. Icahn’s firm in 1998 and worked as its president for four years. He then struck out on his own. His current firm, RDG, employs four investment professionals.

(He is also a director of the A.G. Spanos Companies, the real estate firm that owns the San Diego Chargers pro football team.)

The two men still share ties and, sometimes, investment targets. One was Chesapeake Energy, which sold off assets and began lowering its debt months after the activists began holding talks with management.

“Carl’s been a mentor to me in recognizing that being a value investor can also mean being a proactive shareholder,” Mr. Glass said.

Mr. Glass says that he seeks companies with high cash flow from operations and undervalued assets like real estate, as well as boards that he believes need a kick in the pants. He says that his latest target, DST, fits those criteria.

Based in Kansas City, Mo., DST is best known for its software for asset managers and outsourcing firms. The company reported last week $55.2 million in net income for its second quarter, a 41 percent drop from the same time last year.

RDG and others complain that those successful businesses have been overlooked by the market because of a diverse array of holdings like real estate and 10.3 million shares in the State Street Corporation as of Dec. 31.

“It’s hard for them to come up with a reason why this capital allocation strategy is the best one,” Karen Finerman, the president of Metropolitan Capital Advisors, said after the DST meeting.

Peter J. Heckmann, an analyst with Avondale Partners, wrote in a research note last Thursday that the company had yet to articulate a good defense against Mr. Glass’s arguments.

“We would admit to some frustration with management as this is the third consecutive quarter where management disclosures have resulted in declines in our forecasts,” he wrote.

Mr. Glass says that he has partnered with a “top tier” private equity firm, which he will not name, and that DST has received approaches from several other buyout shops.

It is unclear whether Mr. Glass’s takeover approach will succeed. Last year, he announced two unsolicited takeover bids for Benihana, the Japanese restaurant chain, which rejected his offers.

But a fellow activist investor, Coliseum Capital, followed up Mr. Glass’s approach with a proxy fight.

Benihana ultimately agreed to seat a Coliseum-nominated director and hired the investment bank Jefferies Company to explore a potential sale.

The restaurant chain, which was trading at about $3 when RDG made its first bid, closed on Monday at about $8.96.

Much of RDG’s effort may lie in winning the support of George Argyros, a California real estate investor and board member who owns a nearly 21 percent stake in DST.

Mr. Glass said that he was fine being a “catalyst investor,” so long as it helped prod change.

“The vast majority of shareholders we’ve spoken with or met are on board,” he said. “The expressed consensus view is that management should consider a sale of the company.”

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