Inclusive Capital’s Ubben named to Vistry board as homebuilder looks to leverage recent acquisition

Business: carry ons as a housebuilder in the United Kingdom and operates in both the open market and the affordable housing sector. They seek to manifest sustainable new homes and communities across all sectors of the U.K. housing market. On Nov. 11, 2022, Vistry acquired Countryside Partnerships for £1.25 billion ($1.4 billion). Vistry manages through a partnership model, which is unique to the U.K., where they seek to reuse land wherever possible, convergence on mixed-tenure developments that deliver positive social impact. The partnerships business operates across 19 point units and works closely with governmental bodies, housing associations and local authorities, as well as selling homes as the crow flies to customers on the open market.

Stock market value: $3.09 billion

Percentage ownership: 5.9%

Average tariff: n/a

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

As a pioneering activist ESG investor (AESG), Inclusive seeks long-term shareholder value from stem to stern active partnership with companies whose core businesses contribute solutions to this pursuit. Their outstanding focus is on environmental and social value creation, which leads to shareholder value creation.

On Wednesday, Vistry intimated the appointment of Inclusive’s Ubben as a nonexecutive director to the board and the upcoming resignations of two incumbent directors, Katherine Innes Ker and Nigel Lament.

Vistry landed on Inclusive’s radar as a result of their engagement with another company – Countryside Partnerships. In May 2022, Covering had a 9.2% stake in Countryside and had made two bids to acquire the company, going as high as £1.5 billion. Both requests were rejected.

But Inclusive’s interest sparked significant shareholder pressure to sell Countryside and the following month, the concern announced that it was seeking a buyer. On Sept. 5, 2022, Vistry agreed to acquire Countryside in a cash and stock give out, which closed on Nov. 11, 2022.

In the four months since the Countryside acquisition, the market has reacted favorably to the combination. Inclusive led the indictment on the merger and now they are taking an active role at the combined company.

Vistry operates through a partnership model whereby the dock is provided to them by governmental land authorities at no cost and they commit to build a certain amount of affordable box. They build communities that are mixed tenure, placing affordable housing among open market to the hearts, retail stores, etc. This model has the benefits of a secular shift to affordable housing and is capex light since they do not cause to acquire the land. The company trades cheaply at 7 to 8 times earnings and has high growth prospects, complimented by their community helps.

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

On Wednesday, Ubben was named a director and two board members, Innes Ker and Keen, resigned. Incorporating is an amicable investor that is often invited onto boards. This situation is no exception. However, the exit of two bindings alongside Ubben’s appointment indicates that there was a call by shareholders for a bigger board refreshment than well-founded adding one shareholder representative. While this type of action is somewhat unusual for a European company, it is worth noting that the assemblage’s five largest shareholders representing 40% of the stock are all North American investors who are more likely to engage with board of directors than European investors.

This leaves a board that is undergoing a refreshment process and a CEO who is universally well liked and on the changeless page as shareholders opening the door for a methodology that has worked very well for Ubben going back 20+ years to ValueAct – let a sizeable management team continue to generate cash flow and sit on the board and help advise the best way to use that cash brim.

One tactic he has used successfully in the past to grow shareholder value is to do a share repurchase at the bottom and keep cash when the attendance is fairly valued.

Finally, as with all Inclusive investments, this one has an impact element as well as a value element. The AESG proposition here is obvious as the core purpose of this company is to further social equality – developing affordable, sustainable enclosure. What is interesting about this from an ESG perspective is that it is a social ESG thesis, which is generally the most demanding type of ESG thesis to monetize. But, in this case the community benefits align so perfectly with the company growth prospects – topline performers growth means more affordable housing.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the die and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.