Advance Auto Parts is a well-known automotive aftermarket parts provider, catering to both professional installers and do-it-yourself customers. With a vast network of stores and branches across the United States, Canada, Puerto Rico, and the U.S. Virgin Islands, the company offers a wide selection of brand-name automotive replacement parts, accessories, batteries, and maintenance items for a variety of vehicles.

Third Point, a prominent multi-strategy hedge fund founded by Dan Loeb, is known for taking activist positions in companies. Loeb, a pioneer in the field of shareholder activism, has transitioned from using aggressive tactics like poison-pen letters to focusing on the power of persuasive arguments. In collaboration with Saddle Point, an investment firm led by Roy Katzovicz, Third Point has acquired a significant economic ownership of 8.04% in Advance Auto Parts. The two entities have successfully secured board representation at Advance Auto Parts by appointing three industry executives to the board of directors. The involvement of activists like Third Point and Saddle Point highlights their commitment to driving positive change within the company.

Past Activist Campaigns and Stock Performance

Prior to Third Point’s involvement, Advance Auto Parts had previously faced activist campaigns from Starboard Value. Following a decline in stock price and a significant earnings miss in Q1 of 2023, Advance Auto Parts’ shares plummeted to $72.89. This decline presented an attractive entry point for investors looking to capitalize on the company’s potential for growth and value creation.

One key opportunity for Advance Auto Parts to unlock value is through the potential sale of its wholesale auto parts distribution business, Worldpac. Estimated to be valued at around $1.5 billion, Worldpac could fetch at least $2 billion with the right strategy. The sale would allow the company to reduce debt, strengthen its balance sheet, and focus on its core retail business. Additionally, addressing supply chain and stocking issues within the retail segment could lead to increased revenue and improved EBITDA margins. With an experienced CEO like Shane O’Kelly at the helm, Advance Auto Parts is well-positioned to address these operational challenges and drive growth.

The recent settlement between Third Point, Saddle Point, and Advance Auto Parts resulted in the appointment of three new directors with automotive industry and supply chain experience. These industry executives, including Thomas Seboldt, Gregory Smith, and Brent Windom, bring valuable expertise to the board and are expected to support CEO Shane O’Kelly in executing the company’s strategic initiatives. By aligning the board composition with the company’s operational goals, activist investors like Third Point aim to create long-term value for Advance Auto Parts and its shareholders.

Third Point’s activist strategy in Advance Auto Parts underscores the potential for significant value creation within the company. By leveraging industry expertise, operational improvements, and strategic divestitures, Advance Auto Parts has the opportunity to enhance its financial performance and market position. With the support of activist investors, the company is well-equipped to navigate its challenges and capitalize on growth opportunities in the automotive aftermarket industry.

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