Let’s say that one random afternoon you are having lunch with Carl Icahn, and he tells you that he is going to double his stake in a company that he wants to see sold.
What are you going to do? Argue with one of the greatest activist investing minds out there? I think not. You’re going to go out and buy that stock to piggyback off Icahn.
Here at Stockpickr.com, we track many of the latest activist situations for those interested in piggybacking these funds. We highlight a few of those situations here.
Southern Union's (SUG) largest shareholder, Sandell Asset Management, which has been calling for the natural gas distributor to put itself up for sale for some time now, is now proposing four nominees for election onto Southern Union's board.
Southern Union owns approximately 15,000 miles of interstate pipelines, as well as North America’s largest liquefied natural gas import terminals. A major source of revenue for the firm is its affiliation with Missouri Gas Energy, through which Southern Union provides natural gas to more than 500,000 customers, operating with nearly 13,000 miles of main and service lines. In addition, Southern Union's affiliation with New England Gas currently provides access to more than 50,000 customers with nearly 2,000 miles of main and service lines.
In a recent letter to Southern Union’s management, Sandell said: “We believe the current intrinsic value of SUG to conservatively be $35 per share based on a variety of valuation metrics.”
Southern Union trades with a forward P/E of 7 and EV/EBITDA of 8.7, and it yields 4.8%. Competitor in the natural gas space Atmos Energy (ATO) trades with a P/E of 10.7 and yields 5.7%.
Last week, Sandell amended a settlement agreement with Fair Isaac (FIC) in which Sandell agreed to nominate three individuals to the Fair Isaac's board, with a fourth member who is “reasonably” acceptable to Sandell.
Fair Isaac is a midlevel enterprise management solution firm that helps businesses worldwide enhance their internal performance via custom-made software. Fair Isaac has more than 5,000 clients in more than 80 countries.
In the second quarter of 2008, operating margins for Fair Isaac came in at 19.8% on $205 million in total revenue. Total bookings are now $100 million for the quarter, with a bookings yield of 25% vs. 19% just one quarter ago.
Like with Southern Union, Sandell is pushing Fair Isaac to sell itself.
Fair Isaac trades with a forward P/E of 7.62 and EV/EBITDA of 5.956. Competitor Equifax (EFX) trades with a P/E of 9.7.
On the more speculative side, Biotechnology Value Fund sent a letter to Avigen’s (AVGN) board of directors expressing the fund's displeasure regarding Avigen’s valuation and the fact that Avigen is trading at less than a third of its net cash in the bank.
Avigen has a market cap of $16.1 million, yet the firm has $47.4 million in cash in the bank, which equates to $1.60 per share, and $7 million in debt, which equates to 15 cents in debt per share. After backing out the debt, Avigen trades with a negative enterprise value of -$24.30 million.
Avigen announced late October that its key AV650 drug for multiple sclerosis failed in clinical trials. In biotech land, this was a major blow for the firm, but Avigen’s CEO Kenneth Chahine said: “We believe our strong cash position and management team will make Avigen an attractive partner in this challenging financial climate.”
Odds are that a Genentech (DNA) or Amgen (AMGN) comes in and bids $1 on the pure lottery ticket that AV650 might have a future.
For more activist ideas, including Tier Technologies (TIER), Jackson Hewitt (JTX) and Yahoo! (YHOO), please check out the latest activist filings from Barron’s.
Posted on Dec. 17, 2008
