The hedge fund ValueAct Capital Management has just scooped up a not-too-shabby stake in American Express (NYSE: AXP). According to reports, their investment in the financial services corporation is now valued at around a billion dollars with their acquisition of an under 5 percent stake.
Tough year for American Express
American Express has had a rough run this year so far, starting with their long-term partnership with Costco Wholesale Corp. (NASDAQ: COST) failing to see renewal past 2016. As the merchant agreements and co-brand agreements for the wholesaler's U.S. stores ends next year, American Express will be faced with a gaping hole in this segment. The financial service firm’s shares had taken a hit in February, on the back of this announcement. They have since increased their cash rewards with a view to driving usage of American Express cards.
In a further setback, it lost the case with the Department of Justice in the same month, on allegations that American Express merchant rules violated antitrust laws. To add to the challenge, the company lost its President Ed Gilligan when he suddenly passed away in May. With Gilligan gone, there is no clear successor in sight for CEO Ken Chenault. Chenault has helmed the firm since 2001, as Chairman and CEO.
The ValueAct agenda
ValueAct has indicated that it will work at pushing for change that will bring more value to shareholders. To this effect, the team has been in discussions on long-term strategy with senior leadership at American Express.
The activist hedge fund has clarified that while they see American Express as a business with growth potential and a strong foundation, they do not, at present, see it as an active core target. Should the hedge fund feel that there is dissonance on the long-term plans, between what ValueAct is hoping for and what the credit card company decides on, they could sell their stake.
The road ahead for American Express
American Express is putting money into new technology to give it an upgrade. As the financial services firm reels from the outcome of the Costco fallout, it has upped its game on the retail partnership front, as it seeks out new partners.
As the implications of this latest development reveal themselves in the days to come, investors will be looking to Chenault to turn things around from the series of setbacks. In the meantime, the markets have responded well to the ValueAct investment, with share prices going up by 6 percent after the announcement.