American Express (AXP) Surges on ValueAct Capital’s $1B Investment

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The stock price of American Express Company (NYSE:AXP) surged driven by the report that ValueAct Capital Management made a huge investment in the company. The shares of American Express closed $79.74, up by more than 6% on Friday.

ValueAct Capital sees American Express as a quality business

ValueAct Capital acquired q stake in American Express worth approximately $1 billion, according to Bloomberg based on information with knowledge about the investment.

According to the people familiar with the matter, ValueAct Capital sees American Express as a quality business with potential growth.

The activist hedge fund is planning to pursue shareholder-friendly changes at American Express.  One of the sources said the credit card company is not yet a core, active target for the activist hedge, and it might decide to sell its stake if it decided against its campaign for long-term changes.

According to the person, ValueAct already engaged in preliminary talks with the management of Amex. The company confirmed such discussions.

In a statement, American Express said, “ValueAct is a well-respected firm. We have been speaking with them, as we do with other investors, and look forward to continuing a constructive dialogue. At American Express, we are focused on building long-term value for shareholders, and are always open to the views and perspectives of our investors.”

American Express setbacks

The credit card company recently suffered some setback amid strong competition in the credit card industry. The company lost lucrative co-brand contracts such as the one with Costco Wholesale Corporation, which is expected to have a negative impact on its earnings over the next two years.

Additionally, the Department of Justice defeated American Express in a legal battle related to the company’s merchant rules. The court ruled that the company’s merchant rules violated antitrust rules.

American Express CEO Ken Chenault is under pressure to prove that the company can survive from the setbacks. The management implemented disciplined expense control, and boosted cash rewards for credit card members. The company is also seeking new retail partnerships and investing in new technology.

Last month, American Express integrated a new e-commerce technology that allows its U.S. credit card members enrolled in Membership Rewards program to seamlessly use points for online purchases on Best Buy (NYSE:BBY).

Berkshire Hathaway, the multinational conglomerate controlled by Warren Buffett is the largest stockholder of American Express. It has a 15% stake in the credit card company. Mr. Buffett is still pleased with American Express and its CEO Chenault.