Activist hedge fund Starboard Value is escalating its campaign against Knife River, a construction materials supplier, by preparing to nominate directors to the company's seven-seat board. The move signals a shift from public criticism to direct boardroom pressure, with Starboard demanding that Knife River either dramatically improve its profit margins or put itself up for sale.
Starboard, led by CEO Jeffrey Smith, has built a stake in the Bismarck, North Dakota-based company, which has a market value of roughly $2.8 billion. Knife River's shares have fallen 24% over the past 12 months, underperforming the broader market and frustrating investors who see untapped potential.
What Starboard wants
In a letter to Knife River CEO Brian Gray and the board, Smith said years of underperformance need a "clear plan" and "defined accountability." The central demand: achieve an operating margin of 22% by fiscal 2029. That's a significant jump from the roughly 15% margin Knife River reported for the quarter ended June 30.
Starboard argues the gap is even more striking because some of Knife River's peers operate with margins closer to 30%. The implication is that the company is leaving substantial profit on the table, either through inefficiencies, pricing power, or cost controls.
Knife River has responded by saying it is focused on margin expansion and profitable growth, but it has not provided a detailed roadmap for closing the gap. That lack of specificity appears to have pushed Starboard toward a proxy fight, where it will seek to install directors who can force a more aggressive strategy.
Why the margin target matters
For a company like Knife River, which supplies aggregates, ready-mix concrete, and asphalt for construction projects, the margin target is not just a number. In construction materials, much of the cost base—plants, trucks, and crews—is relatively fixed. That means even modest improvements in pricing or volume can flow disproportionately to the bottom line, a dynamic known as operating leverage.
If Knife River can move from a 15% operating margin to 22%, the impact on earnings and cash flow would be substantial. The same sales base would generate significantly more EBITDA and free cash flow, which could support higher dividends, buybacks, or debt reduction—all of which tend to boost a stock's valuation.
But the question is whether that improvement is realistic. Some analysts and investors may view 22% as ambitious, especially if the company's current performance reflects structural challenges rather than just poor execution. If investors come to believe the target is achievable, the stock could re-price quickly. If not, Starboard's alternative—exploring a sale—becomes the focus.
What a sale could look like
Starboard's push to "explore a sale" reframes the debate. If Knife River cannot close the margin gap on its own, a buyer might be willing to pay a premium to do it faster. Private equity firms or larger construction materials companies with better operational expertise could see an opportunity to acquire Knife River and improve its margins through scale or best practices.
This is a familiar playbook for Starboard, which has a history of pushing companies to either improve performance or sell. The firm has been active in other sectors, including pushing Skyworks to cut costs and urging Big Yellow to consider a sale. In each case, the goal is to unlock shareholder value, whether through operational changes or a transaction.
What it means for investors
For everyday investors, this proxy fight is a classic example of how activist investors can influence a company's direction. When an activist like Starboard takes a stake and demands change, it can create volatility but also opportunity. The stock may react to news of the proxy fight, but the bigger move will come if investors start to believe the margin target is achievable or if a sale is announced.
It's important to remember that proxy fights are not guaranteed to succeed. Starboard will need to convince other shareholders to support its nominees, and Knife River's board may resist. But even the threat of a board challenge can push management to act more decisively.
For those holding Knife River shares, the key is to watch how the company responds. Will it provide a credible plan to reach 22% margins? Will it engage with Starboard or fight the nominations? And will other shareholders side with the activist or management? These questions will determine whether the stock re-rates higher or continues to languish.
As with any activist situation, there are risks. The margin target may prove too aggressive, and a sale might not materialize at an attractive price. But the fact that Starboard is willing to go to a proxy fight suggests it sees significant value that the market is not currently pricing in.
For now, the ball is in Knife River's court. The company's next moves—whether to embrace Starboard's demands, offer a compromise, or dig in—will shape the outcome. Investors should keep an eye on any announcements about board nominees, strategic reviews, or updated financial targets.
