Third Point, Saddle Point win board seats at Advance Auto Parts. A plan to improve margins may unfold

Group 1: Investment and Activism - Third Point has formed a group with Saddle Point, collectively owning 4,781,557 shares (8.04%) of Advance Auto Parts (AAP) stock, primarily held by Third Point [1] - Third Point, founded by Dan Loeb, is known for its selective activist positions and has a history of obtaining board representation at companies like Baxter and Disney [2] - On March 11, Third Point and Saddle Point secured board seats for three directors at Advance Auto Parts, enhancing the company's governance [3] Group 2: Historical Context and Stock Performance - Starboard Value previously conducted an activist campaign at Advance Auto Parts from September 2015 to May 2020, exiting when the stock was around $185 per share [4] - The stock peaked at approximately $240 in late 2021 but fell to about $120 by May 2023, following a significant earnings miss of 72 cents per share, which was 68% lower than the same quarter in 2022 [4] Group 3: Business Structure and Value Creation - Advance Auto Parts operates two businesses: a core retail auto parts business and Worldpac, a wholesale auto parts distribution business, with Worldpac valued at approximately $1.5 billion [5] - A potential sale of Worldpac could stabilize the company's balance sheet and improve its S&P rating, with estimates suggesting it could fetch at least $2 billion at a conservative 10x multiple [5] - The retail business is undervalued compared to peers, with AAP's stores valued at approximately $1.25 million each, while O'Reilly and AutoZone are valued at $11 million and $8 million per store, respectively [6] Group 4: Operational Challenges and Management - AAP's sales per store are approximately $1.8 million, significantly lower than O'Reilly's $2.5 million, attributed to supply chain and stocking issues rather than marketing or pricing [6] - The new CEO, Shane O'Kelly, is seen as competent and capable of managing costs, but requires industry expertise and board support, which Third Point and Saddle Point are providing [7] - The newly appointed directors bring extensive automotive and supply chain experience, which is expected to support the CEO in addressing operational challenges [7] Group 5: Activist Strategy and Performance - Third Point has historically achieved an average return of 49.79% when securing three or more board seats in activist campaigns, outperforming the S&P 500's 37.77% [8]