SCHEDULE 13D/A: Fortrea Holdings and Starboard Value LP Forge Cooperation Agreement, Appointing New Independent Director

Fortrea Holdings Inc. has entered into a cooperation agreement with activist investor Starboard Value LP, leading to the appointment of Erin L. Russell to its Board of Directors and establishing terms for future governance and shareholder engagement.

Summary

• Fortrea Holdings Inc. and Starboard Value LP, along with its affiliates (collectively, "Starboard"), have executed a cooperation agreement dated February 21, 2025.
• Starboard beneficially owns 4,864,000 shares of Fortrea's common stock, representing approximately 5.4% of the 89,700,000 shares outstanding as of November 6, 2024.
• Fortrea has agreed to appoint Erin L. Russell, a financial and healthcare executive, as a Class II director to its Board of Directors, with her appointment effective promptly after March 4, 2025, and no later than March 20, 2025.
• Fortrea commits to nominate Ms. Russell for election as a Class II director at the 2025 Annual Meeting of Stockholders, which the company will endeavor to hold no later than June 15, 2025.
• From August 10, 2025, until the end of the Standstill Period, Starboard retains the right to recommend one additional director (a "Starboard Appointee") for Board appointment, contingent on Starboard maintaining a "Minimum Ownership Threshold" (the lesser of 3% of outstanding shares or 2,691,000 shares).
• Both the Independent Appointee and any Starboard Appointee will be appointed to at least one Board committee immediately following their respective appointments.
• The Board's size will not exceed nine directors during the Standstill Period unless Starboard provides written consent.
• Starboard has agreed to customary standstill provisions, including voting all beneficially owned shares in favor of the Board's nominees and recommendations at the 2025 Annual Meeting, with specific exceptions for ISS or Glass Lewis recommendations on non-director proposals.
• Fortrea will reimburse Starboard for reasonable, documented out-of-pocket fees and expenses, including legal expenses, up to an aggregate amount of $300,000.

Sentiment

Score: 7

Explanation: The agreement resolves a potential activist conflict, bringing stability and a new independent voice to the board. While there are costs and ongoing influence from Starboard, the avoidance of a proxy fight and the structured engagement are generally positive for corporate governance and shareholder value.

Positives

• The cooperation agreement resolves a potential activist conflict, providing stability to Fortrea's corporate governance and reducing the likelihood of a disruptive proxy contest.
• The appointment of Erin L. Russell, an independent director with extensive finance and healthcare executive experience, is expected to bring valuable expertise and oversight to the Board.
• The agreement includes a mutual non-disparagement clause, fostering a more constructive relationship between Fortrea and Starboard Value LP.
• New directors will be classified as 'Incumbent Board' or 'Continuing Director' for change of control definitions in company plans, which helps maintain stability and clarity regarding executive compensation and other agreements.
• Starboard's commitment to vote in favor of the Board's nominees and recommendations at the 2025 Annual Meeting provides a degree of certainty and support for the company's governance proposals.

Negatives

• Fortrea will incur a cost of up to $300,000 to reimburse Starboard for its expenses related to its involvement and the agreement.
• Starboard retains the right to recommend an additional director from August 2025, indicating ongoing influence and potential for future governance discussions.
• The agreement allows Starboard to make 'Opposition Statements' regarding the company's operational or stock price performance or strategies not supported by the Starboard Appointee, which could still lead to public scrutiny.

Risks

• The company's ability to successfully implement its business strategies and execute its long-term value creation strategy.
• Risks and expenses associated with the company's international operations and currency fluctuations.
• Potential for customer or therapeutic area concentrations to impact business performance.
• Any further deterioration in the macroeconomic environment, which could lead to defaults or cancellations by the company's customers.
• The risk that the company's backlog and net new business may not be indicative of future revenues, or that anticipated future revenue from backlog may not be realized.
• Risks associated with underpricing contracts, cost overruns, or delays in receiving approval for or documenting change orders.
• Potential for future disagreements if Starboard fails to satisfy the 'Minimum Ownership Threshold,' which could affect its right to recommend a Starboard Appointee or replacement directors.

Future Outlook

The agreement outlines future board composition, including the potential for a Starboard representative to join the board from August 2025, subject to ownership thresholds. Fortrea aims to hold its 2025 Annual Meeting no later than June 15, 2025. The company's forward-looking statements highlight ongoing risks related to business strategy implementation, international operations, macroeconomic conditions, and contract performance.

Management Comments

• "We are pleased to have reached a constructive agreement with Starboard, and we appreciate its ongoing engagement and helpful input." Tom Pike, Chairman and CEO, Fortrea.
• "We believe this agreement is in the best interests of Fortrea and all our stakeholders." Tom Pike, Chairman and CEO, Fortrea.
• "Erin brings valuable experience to the Board, and we look forward to working with her." Tom Pike, Chairman and CEO, Fortrea.
• "We appreciate the collaborative and constructive dialogue we have had with the Board and management of Fortrea." Jeff Smith, CEO and Chief Investment Officer, Starboard.
• "We believe Erin will bring her deep expertise and unique views in order to help Fortrea drive further financial improvements and maximize value for all shareholders." Jeff Smith, CEO and Chief Investment Officer, Starboard.

Industry Context

This cooperation agreement reflects a common trend in the life sciences and contract research organization (CRO) industry where activist investors engage with companies to influence corporate governance and strategic direction. Starboard Value LP, known for its activist approach, aims to drive financial improvements and maximize shareholder value, a goal often pursued in mature or underperforming sectors. The appointment of a director with finance and healthcare experience aligns with the industry's need for strong financial oversight and strategic guidance in a competitive and evolving market.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: The agreement aims to stabilize corporate governance by avoiding a proxy contest, potentially leading to more predictable strategic execution. The appointment of an experienced independent director and the potential for a Starboard representative could enhance oversight and drive value. However, the expense reimbursement to Starboard is a direct cost.
• Management/Employees: The agreement provides clarity on board composition and reduces the immediate threat of a disruptive activist campaign, potentially allowing management to focus more on business operations. The classification of new directors as 'Incumbent Board' members helps maintain stability in executive compensation plans.

Next Steps

• Fortrea to appoint Erin L. Russell to the Board of Directors promptly after March 4, 2025 (and prior to March 20, 2025).
• Fortrea to use reasonable best efforts to hold the 2025 Annual Meeting no later than June 15, 2025.
• Fortrea to nominate Erin L. Russell for election at the 2025 Annual Meeting.
• New Directors to be appointed to at least one Board committee immediately following their appointment.
• Starboard to have the right to recommend a "Starboard Appointee" for Board appointment from August 10, 2025, subject to ownership thresholds.
• Starboard to vote its shares according to the agreement's terms at the 2025 Annual Meeting and any special meetings/written consents during the Standstill Period.
• Company and Starboard to jointly issue a mutually agreeable press release.

Key Dates

Recommendation

Keywords

Fortrea Holdings Inc., FTRE, Starboard Value LP, Activist Investor, Cooperation Agreement, Board of Directors, Corporate Governance, SEC Filing, Schedule 13D/A, Erin L. Russell, Shareholder Agreement, Clinical Research Organization, CRO