Whirlpool: Shareholders are Rowing Alone
Whirlpool Corporation (ticker: WHR) is in the headlines today after Appaloosa sent a sharply worded letter to the board criticizing capital allocation decisions and specifically a decision to raise capital by selling additional shares.
Appaloosa is a hedge fund led by David Tepper, one of the most successful investors of his generation and owner of the Carolina Panthers.
When someone with Tepper’s track record goes public, frustration has become extreme. The capital raise by WHR and how it was done obviously hit the wrong chord.
Devotion has closely followed this situation. We have owned WHR several times in the past. We came to the same conclusion as Appaloosa – just sooner. We concluded that this management team was not the kind of partner we want.
The acquisition of InSinkErator from Emerson Electric (ticker: EMR) was illustrative for us. Emerson effectively celebrated the valuation it received. When the seller is crowing about price, owners of the buyer should pay attention.
Whirlpool paid $3 billion in cash for the garbage disposal manufacturer Insinkerator in 2022 and borrowed a lot of money to do it. The deal smacked of desperation to us.
To put that figure in into perspective, all the equity of Whirlpool is currently valued at $4 billion. And the company is buckling under the weight of the debt it took on to fund ill-advised acquisitions, poorly timed stock repurchases, and dividends they could not afford.
The Tepper letter is when a manager can’t take it anymore. It gets written when capital allocation mistakes compound and shareholder value evaporates.
Even billionaires can be wrong.
We are not traders of stocks – we seek long term compounding. We want to be partners with management teams on behalf of our clients. And when that partnership breaks down or obviously was never there, we leave.
Devotion to Partnership.
Disclosure: Devotion Capital and its clients hold no position in Whirlpool (WHR).
