HedgeCo.Net — Starboard Value is preparing to nominate directors for election to the board of Knife River, stepping up pressure on the construction materials company to improve its profit margins or put itself up for sale, Reuters reported on Monday, citing people familiar with the matter. The activist has already lined up some director candidates and is continuing to identify others, according to the report.
Starboard disclosed its stake last month in a letter in which managing member and chief executive Jeffrey Smith told Knife River CEO Brian Gray and the board that he wanted to see a “clear plan, defined accountability, and decisive action to address years of underperformance.” The fund has urged management to lift margins to 22% by fiscal 2029. Knife River, based in Bismarck, North Dakota, reported margins of about 15% for the quarter ended June 30, while rivals have expanded margins to roughly 30%, Reuters reported. The company has a market value of about $2.8 billion, and its shares have fallen 24% over the past 12 months.
Knife River responded on September 24 that it first learned of Starboard’s investment on September 22, that its board and management welcome shareholder input, and that the board is confident in its leadership and strategy. The company pointed to its EDGE initiatives on pricing, operational performance and efficiency, and said its vertically integrated model across aggregates, ready-mix concrete, asphalt and contracting is central to how it creates value. According to the Reuters report, that reply did not set out how the company would close the margin gap, and Starboard is now ready to take further action.
For hedge fund investors, the campaign is a textbook Starboard setup: a mid-cap spun out as an independent public company in 2023, a measurable operating gap to peers, and a board of seven directors where a minority slate could shift the agenda. The explicit mention of a sale as an alternative also raises the prospect that strategic buyers or private equity could take a look at the company if the board does not deliver a credible margin plan.
Smith is scheduled to speak at the 13D Monitor Active-Passive Investor Summit in New York on Tuesday, where he is expected to discuss some of the firm’s investments in detail. The next markers are whether Starboard formally submits its nominations and whether Knife River seeks a settlement before a proxy contest takes shape.