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Company: Soho House & Co Inc (SHCO)
Business: Soho House provides a global membership platform of physical and digital spaces that connects diverse groups of members from across the world. The members use the platform to work, socialize, connect and create all over the world. The company’s segments include United Kingdom, North America and Europe, and the rest of the world. Soho House’s global portfolio consists of approximately 42 Soho Houses, nine Soho Works, Scorpios Beach Club in Mykonos, Soho Home (its interiors and lifestyle retail brand) and its digital channels.
Stock Market Value: ~$1.53B ($7.87 per share)
Soho House shares over the past year
Activist: Third Point
Ownership: 9.89%
Average Cost: $7.64
Activist Commentary: Third Point is a multi-strategy hedge fund founded by Dan Loeb, that will selectively take activist positions. Loeb is one of the true pioneers in the field of shareholder activism and one of a handful of activists who shaped what has become modern day shareholder activism. He invented the poison-pen letter in a time when it was often necessary. As times have changed, he has transitioned from the poison pen to the power of the argument. Third Point has amicably obtained board representation at companies like Baxter and Disney, but the firm will not hesitate to launch a proxy fight if it is being ignored.
What’s happening
On Jan. 29, Third Point sent a letter announcing that it supports Soho House’s decision to explore a take-private transaction but has concerns about the process that was undertaken which resulted in a proposed transaction with the chairman of the Board. They believe that several qualified parties with significant experience investing in the hospitality industry would be interested in paying a superior price to the current deal.
Behind the scenes
Soho House is a global membership platform of physical and digital spaces that connects a diverse group of members to work, socialize, connect, create and have fun. The company operates a global network of 45 Soho House private members’ clubs, along with other ventures such as 8 Soho Works co-working spaces. Soho House, previously Membership Collective Group, went public in 2021 raising $420 million at a $2.8 billion valuation and a $14 stock price. Since going public, revenue more than doubled from $561 million to $1.2 billion and earnings before interest, taxes, depreciation and amortization increased to $99 million, while the stock price declined from $14 to below $5 per share as of mid-December. The company has an attractive recurring revenue model, as opposed to hospitality peers who must constantly fight for their next customer, a substantial wait list for membership, and a reasonably priced, yet luxury offering. Importantly, their houses have a steep maturity curve, with new houses needing time to develop their membership base resulting in early loss-making. However, as they mature in profitability and durability, they can contribute, on average, 35%+ house-level margin, with some well above that.
On Dec. 19, Soho House announced that it had received an offer from a new third-party consortium to acquire the company for about $9 per share conditioned on certain significant shareholders, including Soho House’s executive chairman Ron Burkle and The Yucaipa Companies and its affiliates, rolling over their equity interests as part of the transaction. The offer, supported by Burkle and Yucaipa, sent shares up 47%. Just a day earlier, shares closed at $4.91. Soho House did not disclose a lot of details about this offer, but one thing that you could probably assume is that with 46.7% of the outstanding shares and 62.3% of the voting power, Burkle would likely end up controlling the private entity. So, to recap, Burkle took the company public at $14 per share and used the $420 million raised to fund its growth. Management ran the company down from $14 per share to $4.91 per share. Now that they see an opportunity for a turnaround, they seem willing to take it private at a cheap price, which wouldn’t benefit the public shareholders.
Enter Dan Loeb and Third Point who, on Jan. 29, 2025, filed a 13D declaring beneficial ownership of 9.89% of the company’s Class A stock with an accompanying letter to the board of Soho House. In the letter, Loeb applauded the decision to return the company to private ownership, but he lambasted the board for its failure to ensure a fair sales process that maximizes value for all shareholders. Instead, he accused them of engaging in an opaque process that resulted in a “sweetheart deal” with Soho House’s chairman. Loeb thinks that an independent and rigorous sales process would yield several interested and qualified parties with significant investing experience in the hospitality sector. He urged the company to launch a process of this nature and warned that transactions involving controlling shareholders, especially in instances of super-voting control rather than economic interest, are subject to the most exacting standards under Delaware law, and that the board’s conduct could expose them to liability for failing to discharge their fiduciary duties.
This is not a typical activist campaign for Third Point. This is not Third Point opportunistically using activism to create value. Instead, Third Point was a cornerstone investor in the Soho House IPO and is not the type of investor to stand by quietly while management fails to maximize value for shareholders. This is a $40 million investment for Third Point that is now worth $43 million. Third Point manages more than $11 billion. This investment will not move the needle for the firm, but Loeb is the type of person who will do everything he can to maximize the value of every investment. Additionally, the best activists — like Loeb — have activism in their blood and cannot morally stand idly by while management harms shareholders.
There is no doubt that this is an example of poor corporate governance – an opaque, poorly disclosed sale of the company at a low price to the majority shareholder without running a sales process. But Ron Burkle is not a bad person. While some members of the board might be less sophisticated public company directors not fully aware of their duties and liability, they are not bad people either. As a 46.7% owner with super-voting Class B shares and voting control of a company he took public and ran for many years, Burkle and the board probably thought they could get this by the shareholders without any challenge. Well, that is not the case anymore. So, one of the following three things is going to happen now: (i) Burkle will increase his offer to a value closer to the IPO price, (ii) someone else will come in and offer more for the company – there are certainly interested buyers out there who might have seen any offer to Burkle as futile but might now see a path to an acquisition with Third Point involved; or (iii) Third Point will commence a lawsuit against Soho House and the directors. We do not see it coming to this. The board has smart lawyers and advisors who will inform the directors of their reputational and potential financial liability. We expect that Burkle and the board will ultimately do the right thing and make a fair offer to acquire the company if they really want it.
Third Point is a multi-strategy hedge fund founded by Dan Loeb, a true pioneer of shareholder activism. In addition to selectively taking activist positions, the firm has generated impressive returns in credit, venture and growth strategies as well. While Third Point is known by many for its poison-pen letters, that was the Third Point of 15 years ago. The modern-day Third Point succeeds at its activism through the power of the argument and respect. Activists are often criticized and avoided, but this is a situation where one is spending his own money to protect the value for all shareholders, and just about everyone would welcome that.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.