Building Materials Holding Corp. of San Francisco has an age-old business: It sells lumber and other building supplies to contractors and provides construction services such as framing, plumbing and concrete to home builders.
Yet its stock chart has that mountainous look of a technology company. Tracking housing, it has gone from about $9 (Rs369) per share three years ago to a high of $48.65 in September 2005 and back to $15.31.
That attracted the attention of Chapman Capital LLC, an activist hedge fund that normally goes after downtrodden tech firms. Headed by 40-year-old Robert Chapman, the firm has attracted attention itself for its brazen tactics.
Its modus operandi is to accumulate shares in small and mid-size companies, often becoming the largest shareholder. It then tries to publicly shame and bully the company’s board and management into taking actions—such as slashing costs, firing executives or putting itself up for sale—to raise the stock price.
Chapman “is a real character, an iconoclast,” says Pat McGurn of Institutional Shareholder Services. “He has written some communications with CEOs and boards that have been downright brutal at times. But it does seem to have an impact in some cases.”
Chapman says his main weapon is Schedule 13D, the public document investors must file with the Securities and Exchange Commission (SEC) when they acquire 5% or more of a company’s shares.
Most 13D filings are snooze-inducing. But Chapman’s are vitriolic missives that typically chronicle his attempts—usually futile—to engage management and detail his strategies for boosting the stock price. They often include correspondence between Chapman and target-firm executives and are laced with the occasional expletive and words you’d only hear in a spelling bee final.
In a letter to John Lewis, chairman of Vitesse Semiconductor, he used the terms “macerate” (from Latin, meaning to soften) and “pretermit” (disregard) and called three Vitesse executives ousted for alleged stock-option backdating “the three stooges.”
He wrote that Vitesse’s CEO “appears to be emotionally estranged from and morally misaligned with the company’s owners” and told Lewis, “You cannot escape blame for weak oversight of a partially expelled executive management team that dwelled far too long in the abyss of confident incompetence.”
Vitesse is one of Chapman’s few disappointments.
From 1996 to 2003, Chapman says, he made money on 17 of 17 deals. He won’t discuss performance, but published sources put it around 20% a year. In 2004, after a serious surfing accident, Chapman took a sabbatical.
Last year, he went back to work, raising $300 million in two new funds. Since then, he has filed seven 13Ds. Two of these investments are break-even, Vitesse is significantly underwater and the others are or were profitable, he says.
He made money on Agile Software, which agreed to be taken over by Oracle, and Embarcadero Technologies.
On 7 March, Chapman Capital threatened to disclose the results of its investigation of Embarcadero’s management and directors if the firm didn’t agree to sell by 30 March.
In the 13D, Chapman said he told Embarcadero chief financial officer Michael Shahbazian that his background check revealed that shareholders of three companies where Shahbazian had worked previously viewed him negatively. Shahbazian reacted temperamentally to Chapman with the eloquent response, “F-- you!” The expletive was not deleted in the 13D and is the only time it shows up in the SEC’s database except in the title of porno films.