Activist fund Ananym steps up calls for LKQ to sell European business

Ananym Capital's Call for LKQ's European Business Sale

By Svea Herbst-Bayliss

Performance Analysis of LKQ

NEW YORK (Reuters) -Ananym Capital has intensified its call for auto-parts supplier LKQ to sell its European business, stressing that there are interested buyers and that the proceeds could be used to buy back shares, according to a letter to LKQ's board on Friday that was seen by Reuters.

Potential Benefits for Shareholders

The letter, following close on the heels of the company's third-quarter earnings report the day before, pressed the activist hedge fund's point that keeping the European and North American businesses together makes little sense.

Management's Response and Strategy

"While management continues to pursue the arduous task of trying to integrate the disparate collection of businesses that comprise the EU business, LKQ continues to suffer from a substantial sum-of-the-parts discount and to dramatically lag its peers in share price performance," the hedge fund wrote.

A representative for LKQ was not immediately available to comment.

On Thursday's earnings call with analysts, CEO Justin Jude said: "The challenges in Europe affect the entire industry but LKQ excels in such environments, as shown by our own success in North America. Having integrated businesses in tough settings before, I am confident we can achieve similar results in Europe."

The strong North America performance powered a more than 5% rise in LKQ's stock during Thursday's session, but its close at $31.16 left it down more than 16% for the past 12 months.

Ananym's letter noted that the total return on stock in LKQ, which has a market value of $8 billion, has lagged its proxy peers by 33% over the last 12 months, by 113% over the last five years, and by 253% over the last decade.

It added that, instead of trying to integrate 20 ERP software systems across 900 locations in 18 different countries in Europe, management should talk to potential buyers who could handle the integration and free up LKQ executives to concentrate on running its "crown jewel NA (North America) collision business."

Management could use the proceeds from selling the European business to reduce leverage and buy back shares, which would create more benefits for shareholders than trying to run the European business in the coming years, the hedge fund said.

Ananym has been holding discussions with Chicago-headquartered LKQ in recent months and has been largely complimentary of the company's CEO, Justin Jude, who was named to the position in July 2024.

But in late summer, the hedge fund stepped up its push for a separation or sale of the European business after disappointing second-quarter earnings, when investors pushed the stock price down more than 20%.

The company has taken steps to simplify its portfolio, and in August announced the sale of its self-service segment to private-equity firm Pacific Avenue Capital Partners.

Ananym was founded last year by Charlie Penner, the architect of a massive three-board-seat victory at Exxon Mobil in 2021, and former P2 partner Alex Silver.

(Reporting by Svea Herbst-Bayliss; Editing by Edmund Klamann)