Activist Ananym Capital urges LKQ to sell its European auto parts business

Ananym Capital Pushes LKQ to Divest European Unit, Highlighting Potential Value for Investors

Imagine trying to run two very different restaurants from one kitchen—one in your hometown and one across the ocean. That’s the situation facing LKQ Corp., a big player in car parts, and it matters to investors because the company’s next move could reshape its future and your portfolio returns.

What Does LKQ Do?

LKQ Corp. sells all kinds of car parts—everything from bumpers and mirrors to engine parts and fluids. They help car repair shops, dealerships, and regular drivers fix and upgrade their vehicles. LKQ operates in North America, Europe, and has a special segment for RVs. The company is worth about $7.66 billion and is based in Tennessee.

Who’s Shaking Things Up?

A new activist investment firm called Ananym Capital Management, run by experienced investors Charlie Penner and Alex Silver, owns a small piece of LKQ. They think LKQ should sell its European business and focus just on North America, where it’s stronger and more profitable.

Why Does This Matter for Investors?

When a company’s attention is split, it can lose focus and profits. LKQ’s North American business makes up only 40% of sales but over half its profits, while Europe brings in more sales but lower margins. This split can make it harder for the company to grow and reward shareholders.

According to a Harvard Business Review study, companies that sell off less profitable divisions often see their stock prices rise faster than those that don’t.

Bull Case: Why Selling Europe Could Help

  • Higher Profits: North America has bigger profit margins and is easier to manage because it’s one big market, not many small ones with different rules.
  • Simpler Business: Running fewer, more similar businesses can mean fewer headaches and better performance.
  • Unlock Value: LKQ’s stock trades at a lower price compared to similar companies. If it sells Europe and focuses on North America, its stock could rise to match others in the industry.
  • Share Buybacks: The money from selling Europe could let LKQ buy back up to 40% of its shares. That could boost each share’s value.
  • Proven Track Record: When another investor, ValueAct, pushed for similar changes a few years ago, LKQ’s stock nearly doubled.
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Bear Case: Why Keeping Europe Might Be Smart

  • Growth Potential: Europe is a big market. If LKQ can solve its problems there, it could be a major growth engine.
  • Integration Isn’t Easy: Selling such a large part of the business is complicated. It could take time and money, and might not go as planned.
  • Market Risks: The stock has dropped before when investors got involved and changes didn’t work out as hoped.
  • New Leadership: LKQ’s new CEO, Justin Jude, has already started making positive changes, like selling off smaller businesses and planning big share buybacks.

Historical Context & Lessons

LKQ has a history of doing better when it keeps things simple. After ValueAct’s campaign in 2019, LKQ paused its European expansion and focused on cash flow and buybacks. The result? The stock went up 86%, far better than the Russell 2000 index during the same time.

But when LKQ returned to buying up businesses in Europe, the stock fell. This shows how important strategy and focus are for investors.

What’s Next?

Ananym wants a seat on the board to push for these changes. They think that with the right financial minds helping steer the ship, LKQ can make smarter decisions and reward shareholders. The CEO is open to change but may need convincing to let go of the European business.

Investor Takeaway

  • Watch for News: Keep an eye on announcements about selling the European business or changes to the board.
  • Think Long-Term: Simplifying the business could boost profits and stock price, but it won’t happen overnight.
  • Compare Peers: See how LKQ stacks up to similar companies like O’Reilly and AutoZone, which focus on strong core markets.
  • Management Moves Matter: New leadership and activist investors can change a company’s direction—sometimes for the better, sometimes not.
  • Balance Risk and Reward: Big changes bring opportunity, but also risk. Diversify your portfolio and don’t bet everything on one outcome.

For the full original report, see CNBC

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