Activist hedge fund, ValueAct Capital Management takes significant stake in American Express

A prominent activist hedge fund, ValueAct Capital Management has taken a significant stake in American Express, which had been hard put to meet some challenges.

In case ValueAct were to push ahead with an activist campaign, American Express would become its latest prominent target.

ValueAct had pushed for change at Microsoft, among others, in recent years.

Shares of American Express jumped 6 per cent after Bloomberg News reported that the hedge fund had built up a position worth around $1 billion.

The amount, though significant, would still rank the activist investor below American Express's top 10 shareholders.

Last year had seen American Express face several setbacks, including revenue failing to come up to analysts' expectations and the loss of a longstanding partnership with American wholesaler Costco.

The company had also been forced to rebuild its leadership following the death of Edward P Gilligan, its president and heir apparent, in late May.

''ValueAct is a well-respected firm,'' Marina Norville, a spokeswoman for American Express, said in a statement. ''We have been speaking with them, as we do with other investors, and look forward to continuing a constructive dialogue. At American Express, we are focused on building long-term value for shareholders, and are always open to the views and perspectives of our investors.''

The fund, which manages over $1billion, typically favoured good companies having  recurring revenues that it viewed as temporarily mispriced, and preferred the approach of working behind the scenes influencing managers and directors.

As AmEx tried to come to reconcile to the loss of Costco, which accounted for one in every 10 AmEx cards and 20 per cent of total loans, the company said earnings per share would not change or would be down modestly this year and quarterly results would be uneven as marketing expenses increased.

It was boosting  card rewards and sought new retail partnerships even as it continued to invest in new technology as the market for digital payments accelerated. The company was also seeking expansion of its international business.

Warren Buffett, whose Berkshire Hathaway Inc had the largest stake in AmEx, had said that he remained happy with the company and its leadership.

According to Charles Munger, vice chairman at Berkshire Hathaway, AmEx's competitive advantage might be eroding and that maintaining its long period of achievement and prosperity was harder today.