ADT Corporation ADT
ADT is drastically under-levered post-Tyco spin; levering to 3.0x EBITDA and repurchasing ~30% of the float delivers ~44% upside to a $55 target.
Thesis
Corvex discloses a ~5% stake in ADT — its largest position since inception — and argues the market has mispriced the company following its September 2012 spin-off from Tyco. ADT is North America's #1 home security monitor with 6.5M subscribers, 25% share, 90% recurring revenue, and ~49% EBITDA margins, yet trades at just 6x EV/EBITDA with a 10% levered FCF yield because it is funded roughly 80% by equity despite debt yielding only 1.7%. Corvex demands ADT immediately lever to 3.0x Net Debt/EBITDA — conservative versus home-security peers at 5.1x and cable at 3.5x — and deploy the proceeds to repurchase approximately 30% of the float. The result: a one-year base-case price target of $55 (+44%) versus $38.10, driven by balance-sheet recapitalization, margin expansion, and multiple re-rating.
SCQA
ADT is the dominant North American home security monitor — 6.5M subscribers, 25% market share, 90% recurring monthly revenue, ~49% EBITDA margins — spun out of Tyco in September 2012.
The post-spin stock trades at only 6x EV/EBITDA because ADT is funded ~80% with equity while its debt yields 1.7%, making the current capital structure 'indefensible' and costing shareholders ~$105M annually.
Corvex demands ADT immediately lever to 3.0x Net Debt/EBITDA, repurchase roughly 30% of the float, and commit to a fixed leverage target with ongoing capital return to shareholders.
One-year base-case target of $55 (+44.4%), upside case $63 (+65.4%) vs. $38.10, driven by share shrink, EBITDA growth, margin expansion, and multiple re-rating toward cable/home-security peers.
The three reasons
- 1
ADT is funded ~80% equity while debt yields 1.7%, losing shareholders ~$105M/year (~$286,540/day)
- 2
Levering to 3.0x EBITDA (vs. 5.1x home-security peers) funds repurchase of ~30% of the float
- 3
Defensive 90%-recurring franchise with 25% share and ~49% EBITDA margins supports far higher leverage
Primary demands
- Immediately increase leverage to 3.0x Net Debt/EBITDA
- Use debt proceeds to repurchase approximately 30% of the float
- Maintain a fixed 3.0x leverage target going forward
- Deploy ongoing incremental debt capacity and excess FCF to return capital to shareholders
- Clearly communicate leverage target and capital allocation plan to the market
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- AboveNet (Corvex 13D; acquired by Zayo March 2012)
- Corrections Corporation of America (Corvex 13D; IRS private letter ruling for REIT conversion July 2012)
- Ralcorp (Keith Meister joined board October 2012)
Notable slides (6)
Notes
Filed as Exhibit 6 to Corvex's 13D on ADT (SEC EDGAR). Keith Meister's flagship 'Excellence in Investing: San Francisco' presentation and Corvex's largest position since inception. Canonical balance-sheet-recap activist thesis: recurring-revenue franchise + under-levered capital structure = equity-shrink + multiple re-rating. Memorable framings: 'Maintaining current capital structure is indefensible' (p.5) and the closing equation (p.50). Management quoted supportively rather than adversarially — tone is analytical, not litigious. No individual CEO/chair villainized.