Activist investment firm Starboard Value has acquired a substantial stake in construction materials and contracting company Knife River, signaling its intent to press for improved profit margins or explore a possible sale, according to sources close to the matter.

Knife River, headquartered in North Dakota, currently holds a market capitalization of approximately $3 billion. The company’s stock has declined by nearly 30% so far this year. It was spun off from MDU Resources Group in 2023 with the aim of establishing itself as an independent operator in the construction sector.

The company specializes in producing essential construction materials such as crushed stone, sand, and gravel, which are key inputs for asphalt and concrete production. Knife River also undertakes contracting work for both government and private sector projects.

Sources indicate that Starboard is urging Knife River to focus on narrowing the gap between its earnings before interest, tax, depreciation, and amortization (EBITDA) margins and those of its industry peers over the coming years. Starboard reportedly believes that the spin-off has not yielded significant margin improvements and sees potential for operational enhancements.

Additionally, the investment firm is advocating for Knife River to actively consider strategic alternatives, including a potential sale. Starboard views the company’s business as having a substantial entry barrier, making it an attractive proposition for prospective buyers.

In a recent investor presentation released early Wednesday, Knife River acknowledged ongoing challenges such as project delays and rising fuel costs, which it expects to persist throughout the fiscal year. The company’s shares fell more than 7% following the update. For the quarter ending June 30, Knife River reported adjusted EBITDA margins of roughly 15%, significantly lower than the approximately 30% margins posted by sector-leading firms Vulcan Materials and Martin Marietta during the same period.

The developments highlight mounting pressure on Knife River to enhance profitability amid a competitive and cost-sensitive construction materials market. Starboard's involvement could accelerate strategic changes for the company as it navigates these obstacles.