Exclusive: Sachem Head bets on Instructure, plans to call for review

 Exclusive: Sachem Head bets on Instructure, plans to call for review

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund Sachem Head Capital Management has built a new stake in Instructure Inc and plans to push the educational software company to explore alternatives, including selling itself, two people familiar with the matter said on Thursday.

New York-based Sachem Head, which has been buying the company's shares over time, wants the Salt Lake City-based company, which has a market capitalization of $1.6 billion (£1.24 billion), to pursue a full sale process, the sources said. The exact size of Sachem Head's position could not be determined.

Sachem Head, which is run by Scott Ferguson and invests $3.2 billion on behalf of clients, according to a recent regulatory filing, is one of a handful of activist investors that have successfully pushed companies to break apart or sell themselves.

A spokesman for Sachem Head declined to comment.

Instructure's stock price jumped as much as 6% on the news of Sachem Head's stake.

The hedge fund believes Instructure, which has been a publicly-traded company since 2015, can generate interest among private equity investors as well as publicly-traded companies that want its education product, according to the sources, who asked not to be named because the matter is private.

Since January, Instructure's share price has gained 16% but it lags the Standard & Poor's 500 20.6% gain, in part because its employee development software product Bridge has failed to generate considerable market share, sources said.

Instructure's flagship learning management system, Canvas, is a market leader in the higher educational space, where it enjoys strong customer support and has recently begun to move into international markets.

Instructure has a number of hedge fund owners and in the last months a handful of investors have privately complained to management about the company's direction, taking particular aim at the Bridge product, sources said.

One investor is hedge fund Praesidium Investment Management Company whose portfolio manager Kevin Oram presented the company as one of his best ideas at the recent Sohn San Francisco Investment Conference, citing Canvas' success and Bridge's failures.

Having Sachem Head as a new investor in the stock could add considerable momentum to changes the company may already be thinking about, sources said.

Instructure has announced plans to hold an analyst day on Dec. 3, and may lay out potential changes at that time.

Sachem Head recently called on Whitbread PLC to sell its Costa Coffee business before it was spun off to Coca-Cola Co . It also helped persuade Eagle Materials to split its core businesses before the company's board agreed to spin off its heavy materials and light materials businesses into two publicly traded entities.

The hedge fund prefers to stay out of the limelight and tends to settle with companies instead of waging expensive and time consuming proxy contests. Market speculation began mounting about Sachem Head's new position after Ferguson teased a new idea, without naming it, at a recent industry conference.

Demand to buy the company outright could be high among private equity investors ranging from Vista Equity Partners to Providence Equity Partners to Silver Lake Partners. At the same time companies like Microsoft Corp and Alphabet Inc's Google, which owns Google Classroom, and publishers like Pearson PLC McGraw Hill Education Holdings might be interested, sources said.

(Reporting by Svea Herbst-Bayliss; Editing by Tom Brown)

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Updated Date: Nov 01, 2019 03:07:44 IST