Starboard nominates two to CarMax board, unveils new position

NEW YORK, March 11 (Reuters) – Starboard Value said it has taken a stake in CarMax and nominated two directors to its board, urging the used car retailer to improve the experience of its digital users, cut costs and change its pricing structure.

Starboard, one of the industry’s busiest activist investors, now owns roughly $350 million worth of shares in CarMax and nominated Bill Cobb, the CEO of home warranties provider Frontdoor, and Jeffrey Smith, Starboard’s founder and chief executive, as directors. The company currently has nine directors.

CarMax is the largest used car retailer in the U.S., selling over one million vehicles annually in retail and wholesale through a scaled omnichannel platform earning more than $26 billion in revenue a year. Its stock price has dropped 43% in the last 12 months and traded at $42.07 on Wednesday, valuing the company at $6 billion.

Starboard said in a letter to the board and its chief executive officer “We are thrilled to be involved in CarMax, a structurally strong and durable business.”

Starboard signaled support for Keith Barr, who was named CEO last month and has led a digital transformation and enhanced the customer experience when he served as chief executive of InterContinental Hotels Group from 2017 to 2023.

Starboard wrote that the company’s superior omnichannel can deliver sustained share gains with an improved digital user experience, improved cost efficiencies, and more dynamic pricing, the source who has seen the letter said.

CarMax said its discussions with Starboard have been “productive” and said it is pleased to understand that the hedge fund is supportive of the company’s new chief executive.

“CarMax has been taking the necessary steps to ensure that this business delivers on its potential and is responsive to shareholders,” Tom Folliard, executive chair of the CarMax board said in a statement.

This is the second time this week that a new Starboard position has been revealed. On Monday, the hedge fund said it now owns shares in French fry-maker Lamb Weston. It urged the company, which supplies McDonald’s French fries, to double its planned cost cuts and move more quickly on adopting other changes that may already be in the works.

CarMax has faced stiffer competition over the years from online seller Carvana and AutoNation, which offers traditional dealerships. Starboard has identified places to cut costs and is pressing CarMax to find some $300 million in reductions in administrative and operations costs.

The hedge fund has argued the company’s business model where it sells cars online but also has some 250 car lots where customers can see and drive the vehicles should be popular and lucrative with some changes like more dynamic pricing to better respond to market ups and downs.

Starboard has a history of investing in companies associated with cars and in 2017 bought a nearly 10% stake in Cars.com. More recently it invested in Ritchie Bros. Auctioneers, which is now RB Global, and is the world’s biggest auctioneer of vehicles and commercial assets.

(Reporting by Svea Herbst-Bayliss; Editing by Tom Hogue, Lincoln Feast and Chizu Nomiyama)